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Commodities and Precious Metals Update (Week Ending Jan. 18)

Posted:
Topic: Gold , Commodities
Publication Type: Market Commentaries

Key points 

  • Yet another good week for the energy sector, with all components once again ending higher. Natural gas prices increased the most, gaining 10.0%. WTI and Brent crude oil prices rose 4.3% and 3.0%, respectively, while heating oil prices gained 2.0%, gasoline prices rose 3.3% and gasoil prices increased 1.0%.
  • Base metal prices also had a good week.  Nickel and zinc prices increased 3.1% and 3.7%, respectively, and copper and aluminum prices both rose 2.1%.
  • Grain prices were generally higher last week.  Kansas wheat prices rose 0.3%, and corn and soybean prices increased 0.9% and 0.7%, respectively.   Chicago wheat ended the weak down 0.3%.
  • Soft prices also increased last week, with sugar and cotton prices up 2.0% and cotton prices up 1.1%.
  • Gold, silver and platinum prices were all lower last week. Gold prices fell 0.4% while silver and platinum prices dropped 1.6% and 2.5%, respectively.
  • The S&P GSCI outperformed the Bloomberg Commodity Index last week with the S&P GSCI up 2.57% versus up 2.20% for the Bloomberg Commodity Index.  The Bloomberg Commodity Index’s larger exposure to natural gas and base metals helped offset the S&P GSCI’s larger exposure to energy.
  • Total assets in commodity ETPs increased $519.9m. Gold ($615.0m), crude oil ($81.2m) ETP inflows were primarily offset by broad commodity (-$34.0m), energy (ex-crude oil) (-$51.6m) and silver (-$105.4m) ETP outflows.

Commentary

Despite increased estimates of the cost of the government shutdown on U.S. GDP and the disruption of some government issued economic reports, the U.S. dollar strengthened and U.S stock markets rose on reduced concerns of slowing U.S. growth, optimism over a U.S. China-trade agreement and a much-stronger-than-expected industrial production report released on Friday.  On the back of continued evidence of slowing Chinese growth, the PBOC and the Chinese government adopted additional stimulative measures to support its economy, weakening the Chinese renminbi versus the U.S. dollar and increasing expectations the Chinese would be more motivated to reach a trade agreement with the U.S.  At week’s end the U.S. dollar strengthened 0.7%, the S&P 500 Index was up 2.9% and 10-year U.S. interest rates rose 8.5 bps to 2.79%.

Down over 2% on Monday, WTI crude oil prices increased just over 6% the remainder of the week as China announced additional stimulative measures to combat slower growth, Saudi Arabia voiced confidence that OPEC+ cutbacks will reduce global inventories and hopes of a U.S.-China trade agreement increased. Natural gas prices rallied on forecasts of a polar vortex descending on most of the U.S. over the next few weeks.

Gold and silver prices, up through mid-week, were pushed lower by a much-stronger-than expected industrial production report on Friday which helped strengthen the U.S. dollar.   

Despite a stronger U.S. dollar and expectations U.S sanctions on Rusal would be dropped, base metal prices increased, supported by increased expectations of a U.S. China trade agreement, additional Chineses economic stimulative measures and reduced concerns of slowing U.S. growth.

Corn and soybean prices moved higher on reports China would be offering a plan to boost U.S. imports and despite the absence of U.S. agricultural reports due to the U.S. government shutdown.

Sugar prices moved higher mainly supported by higher crude oil prices while coffee prices rose on expectations of a smaller-than-expected Brazilian crop.

Coming up this week      

  • Light holiday-shortened data week.
  • Existing home sales on Tuesday.
  • Jobless claims on Thursday.
  • Durable goods order and new home sales on Friday.
  • EIA Petroleum Report on Thursday and Baker-Hughes Rig Count on Friday.

Jeff has over 20 years experience working as a trader, structurer, marketer and researcher. Most recently, Jeff was the Chief Investment Officer for Rich Investment Services, a company which created, listed and managed ETFs. Prior to Rich Investment Services, Jeff headed the New York Commodities Structuring desk at Deutsche Bank AG. From 2004 to 2007, he headed the marketing and structuring effort for rates based structured products at BNP Paribas in New York. He worked at AIG Financial Products from 1994 to 2004 trading rates-based volatility products as well as marketing and structuring. Jeff received his MBA in Finance from NYU Stern School of Business and his Bachelors of Science in Chemical Engineering from Purdue University.

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