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Commodities and Precious Metals Update (Week ending March 20, 2020)

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

Key points

Double digit declines in all energy prices last week. WTI and Brent crude oil prices dropped 29.5% and 16.7%, respectively. Gasoil and heating oil prices fell 10.5% and 11.5%, respectively, while gasoline prices plunged 31.2%. Natural gas prices lost 11.9% .

Grain prices were mixed last week with wheat and soybean prices rising and corn prices falling. Chicago and Kansas wheat prices increased 6.6% and 8.7%, respectively, and soybean prices increased 1.6%.   Corn prices fell 6.0%.

Base metal prices were all lower last week.  Copper and nickel prices again fell the most, decreasing 11.9% and 9.0%, respectively.  Aluminum prices decreased 5.9% and zinc prices decreased 6.7%.

Precious metal prices were all lower, too, last week.  Gold prices decreased 4.4%%, silver prices lost 14.2% and platinum prices dropped 21.5%.

The Bloomberg Commodity Index fell 6.43% last week.  The Index’s energy sector fell approximately 4%, constituting almost 60% of the Index’s loss and the Index’s base metals sector decreased 1.7% constituting over 25% of the Index’s loss.  The only sector of the Index to increase last week was the grains sector.

Total assets in commodity ETPs increased $100.5m last week. Crude oil ($1,1846.6m), broad commodity ($308.7m) and silver  ($269.2m) ETP inflows were substantially offset by Gold (-$1,595.4m) ETP outflows.

Commentary

Another very volatile week for U.S and global stock and bond markets.  Despite the U.S. Federal Reserve Bank’s emergency 100bp rate cut on Sunday evening, U.S. and global stock markets fell sharply on Monday with the S&P 500 Index falling 12%. Extremely weak Chinese economic numbers combined with California’s shelter-in-place order on Monday, greatly increased concerns of the effect of the coronavirus on the U.S. and global economy, pushing U.S and global stock markets significantly lower while also causing the 10-year Treasury rate to drop 23bps to 0.73%.   Tuesday’s U.S. Federal Reserve announcement of its lending program to support the short-term commercial paper markets to relieve corporate funding stress, helped push the S&P 500 Index up 6% and the U.S. 10-year Treasury Rate to over 1% only to see the S&P 500 Index gains reversed and U.S 10-year Treasury rates move even higher on Wednesday as increased coronavirus concerns resurfaced and investors sold into strength.  Thursday’s action by the ECB along with announcements of global fiscal stimulus programs, pushed U.S stock markets off their intraday lows and helped them finish slightly higher for the day.  Market sentiment reversed on Friday, however, perhaps spooked by another sharp selloff in crude oil prices with the S&P 500 Index dropping over 5% but this time with 10-year U.S. Treasury rates falling over 30bps to 0.85%.  At week’s end the S&P 500 Index was 15% lower at 2,304.92, the 10-year U.S. Treasury rate fell 11bps to 0.85% and the U.S. dollar surged 4.1%.

An extremely volatile week for crude oil prices as well, affected by both coronavirus demand concerns and the Saudi-Russia price war.  WTI crude oil prices fell 35% through Wednesday of last week – and fell almost 24% on Wednesday alone – as a result of increased Saudi and U.S. shale production and as a result of greatly increased concerns of coronavirus demand destruction.   Though Wednesday’s 24% decline in WTI crude oil prices was significantly offset by Thursday’s 24% gain, WTI crude oil prices fell another 13% on Friday.  At week’s end WTI crude oil prices were down just under 30% to under $23/barrel with gasoline prices following suit, falling over 31% over the week.

Chinese economic reports on Monday showing a sharp decline in industrial production, portending a decrease in Chinese GDP growth, increased concerns of the potential global fallout from worldwide coronavirus countermeasures and helped push base metal prices lower last week.  A much stronger U.S. dollar may have also contributed to lower base metal prices. Copper prices fell the most, decreasing almost 12%.

Gold prices, up about 0.5% through Tuesday, fell sharply on Wednesday but drifted higher the remainder of the week.   The move lower in gold prices again may have been a result of investors selling gold to help cover margin calls in equity positions as well as the strength of the U.S. dollar.

Stronger exports to China and increased U.S. demand for wheat-based products as a result of the coronavirus (i.e., increased purchases of bread), helped push wheat and soybean prices higher last week, with wheat prices climbing between 7% -9%.   Corn prices suffered as a result of steeply lower oil and gasoline prices, reducing demand for corn-based ethanol.

Coming up this week      

  • Decent data week starting with the PMI composite flash index and ending with the final estimate for 4th quarter GDP.
  • PMI composite flash index and new home sales on Tuesday.
  • Durable goods orders on Wednesday.
  • Jobless claims, international trade in goods and 4th quarter GDP final estimate on Thursday.
  • Personal income and outlays and consumer sentiment on Friday.
  • EIA petroleum report on Wednesday 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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