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Commodities and Precious Metals Update (Week Ending May 10)

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

Key points 

  • Except for natural gas, all components of the energy sector finished lower last week. WTI and Brent crude oil prices declined 0.4% and 0.3%, respectively and gasoil prices fell 1.1%. Gasoline and heating oil prices fell 1.9% and 1.0%, respectively.  Natural gas prices increased 2.1%.
  • Grain prices were all weaker last week with corn prices decreasing the most.  Corn prices fell 5.1%, Chicago and Kansas wheat prices dropped 3.0% and 3.6%, respectively, and soybean prices lost 3.9%. 
  • Base metal prices, except aluminum prices, all declined last week.    Zinc prices declined the most, falling 5.1%, followed by nickel prices, down 2.1% and copper prices, down 1.6%. Aluminum prices increased 0.6%.
  • Gold and platinum prices increased last week with gold prices gaining 0.5% and platinum prices increasing 0.2%. Silver prices fell 1.3%.
  • Cotton was one of the worst performing commodity last week, falling 9.6%.
  • The S&P GSCI again slightly outperformed the Bloomberg Commodity Index last week. The S&P GSCI decreased 1.20% while the Bloomberg Commodity Index lost 1.43%%. The S&P GSCI’s larger exposure to energy was offset by its smaller exposure to grains, base and precious metals and softs.
  • Total assets in commodity ETPs fell $574.9m last week. Gold        (-$527.6m) and crude oil ($29.3m) ETP outflows were primarily responsible for the outflows.

Commentary

Volatile week spurred by renewed U.S.-China trade tensions and escalating U.S. – Iran frictions.  President Trump’s start-of-the-week tweet threatening more and increased tariffs on Chinese goods increased global growth concerns pushing U.S. stock markets and U.S. Treasury yields lower and the U.S. dollar higher.  End-of-week PPI and CPI numbers showing muted price inflation decreased expectations of a Federal Reserve Bank rate increase and helped weaken the U.S. dollar and move U.S. stock markets and U.S. 10-year Treasury rates slightly higher. At week’s end the S&P 500 was down 2.2%, the 10-year U.S. Treasury rate fell 6bps to 2.47% and the U.S.  dollar weakened 0.2%.

Oil prices moved lower last week mainly due to increased global growth concerns borne from renewed U.S.-China trade frictions and lower EU growth forecasts. The move lower comes despite a much-larger-than-expected decline in U.S inventories, a continued reduction in active U.S. oil rigs and increased U.S.-Iran tensions.

Base metal prices moved lower primarily due to increased global growth concerns arising from renewed U.S.-China trade frictions and lower EU growth forecasts. Decreased inventory levels supported aluminum prices.

Gold prices moved higher on increased geopolitical tensions, renewed trade frictions between the U.S. and China and lower-than-expected U.S. CPI and PPI reports. Silver prices reacted in line with base metal prices.

Wheat and corn prices dropped after the USDA predicted a larger-than-expected corn harvest and record global wheat stockpiles for this year.  Despite expectations of reduced soybean plantings, soybean prices fell on the back of renewed U.S.-China trade tensions.

Cotton prices fell to lows not seen since 2017 due to both renewed U.S.-China trade tensions and estimates supply will increase almost 20% this year.

Coming up this week      

  • Retail sales and Industrial Production on Wednesday.
  • Jobless claims, housing starts and Philadelphia Fed Business outlook survey on Thursday.
  • 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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