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Commodities and Precious Metals Update (Week ending March 6, 2020)

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

Key points 

Except for natural gas, all components of the energy sector were lower last week.  WTI and Brent crude oil prices fell 7.6% and 8.9%, respectively and gasoil and heating oil prices fell 5.6% and 6.1%, respectively.  Gasoline prices fell 6.5%.  Natural gas prices eked out a gain, increasing 0.1%

Grain prices were mixed last week. Chicago and Kansas wheat prices decreased 1.8% and 1.5%, respectively, while corn prices increased 2.1%.  Soybean prices moved slightly lower, decreasing 0.2%.

Base metal prices were mixed last week as well.  Aluminum prices dropped 0.7%, copper prices increased 0.8%, zinc prices fell 2.0%, and nickel prices increased 4.8%.

Precious metal prices all increased last week.  Gold prices gained  4.6%, silver prices rose 4.9% and platinum prices increased 2.8%.

The Bloomberg Commodity moved 0.24% lower last week. Losses in the energy sector were offset by gains in the precious metals sector.

Total assets in commodity ETPs increased again last week rising $1,000.6m. Gold ETPs were again the primary reason for the increase.  Gold ($1,446.6m) and crude oil ($23.2m) ETP inflows were partially offset by broad commodity (-$302.4m),  silver (-$104.3m), precious metal (ex-gold and silver) (-$29.0m) and energy (ex-crude oil) (-$24.2m) ETP outflows.

Commentary

Volatile week for U.S. stock markets.  Increasing 4.6% on Monday following Chairman Powell’s Friday statement reassuring the markets that the Fed will act to maintain the expansion,  the S&P 500 Index fell 2.8% on Tuesday on increasing coronavirus concerns despite the U.S. Federal reserve bank unexpectedly cutting the Fed Funds target rate by 50bps that same day.  Wednesday’s news of an $8 billion emergency spending bill moving through Congress and increased expectations of further rate cuts combined with global central bank accommodation and global fiscal stimulus pushed the S&P 500 Index up 4.2% only to see those gains and more reversed on Thursday and Friday after reports of increased coronavirus cases in California, Seattle and New York.   Down almost 10bps through Wednesday, 10-year U.S. Treasury rates fell close to another 30bps through Friday with increasing expectations of more U.S. Federal Reserve rate cuts.  At weeks end the 10-year U.S. Treasury rate was 39bps lower at a record low of 0.76%, the S&P 500 Index increased 0.6% to 2,972.37 and the U.S. dollar weakened over 2.2% (as measured by the DXY Index).

Up 4% through Thursday mainly on expectations of an OPEC – Russia production cutback agreement, WTI crude oil prices dropped almost 10% on Friday after reports Russia was not willing to increase cutbacks.

Base metal prices were almost all higher through Thursday of last week, supported by Chinese and U.S. fiscal and monetary stimulus (as well EU accommodative statements) implemented to fight coronavirus concerns on global economic growth.   Reports of increasing coronavirus cases outside of China on Thursday and Friday moved base metal prices lower with aluminum prices, for example, falling 2% on Friday.

Gold prices moved higher throughout the week as investors sought haven investments.   Negative real yields and central bank accommodative policy also supported gold prices.

Grain prices higher through Wednesday, moved lower Thursday and Friday due to increasing coronavirus concerns.   Corn prices, negatively affected by falling oil prices because it reduces the demand for corn-based ethanol, were supported by expectations of increased Chinese imports.  Soybean prices, too, benefited from expectations of increased Chinese imports.

Coming up this week      

  • Very light data week highlighted by inflation data.
  • CPI on Wednesday.
  • Jobless claims and PPI on Thursday.
  • Import and export prices 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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