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Commodities and Precious Metals Update (Week ending May 31)

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

Key points 

  • Another poor week for energy commodities. WTI and Brent crude oil prices fell 7.6% and 6.7%, respectively, gasoil prices declined 4.8% and gasoline and heating oil prices lost 6.3%. Natural gas prices declined 5.3%.
  • Yet another good weak for grains.  Chicago wheat prices increased 7.0%, Kansas wheat prices surged 11.2% and corn prices jumped 9.6%. Soybean prices increased 6.8%.
  • Base metal prices were mixed last week. Nickel and zinc prices rose 0.9% and 0.6%, respectively, while copper and aluminum prices decreased 1.5% and 0.1%, respectively.
  • Gold prices moved higher last week while platinum and silver prices fell. Gold prices increased 1.0%. Platinum prices fell 1.1% and silver prices declined 0.3%.
  • Coffee and sugar prices rose 11.9% and 4.6%, respectively.
  • The Bloomberg Commodity Index outperformed the S&P GSCI last week. The S&P GSCI decreased 4.49% while the Bloomberg Commodity Index lost 1.23%. The S&P GSCI’s larger energy exposure and smaller grains, precious metals and softs exposure was primarily responsible for its underperformance.
  • Total assets in commodity ETPs decreased $29.9m last week. Gold ($174.1m) ETP inflows were offset by broad commodity (-$146.5m) and crude oil (-$53.7m) ETP outflows.

Commentary

Continued concerns of weaker global and U.S. growth, driven by U.S-China trade frictions and economic reports pointing to slowdowns in the EU, China and the U.S, helped push commodity and stock markets lower last week.   President Trump’s announcement late Thursday that the U.S. would apply escalating tariffs on Mexican imports, (contingent upon border crossing stipulations), starting June 10, moved already depressed markets lower. The S&P 500 Index, down 1.3% through Thursday, finished the week down 2.6% and the 10-year U.S. Treasury rate, down 11bps through Thursday, closed down 20bps at 2.12% on Friday.  The U.S. dollar strengthened slightly, but off its Thursday’s high, increasing 0.1%. 

Amid continued global growth concerns, record U.S. oil production and a much-lower-than-expected drawdown in U.S. oil inventors oil prices moved sharply lower again last week.  WTI crude oil prices, down 2.2% through Thursday, fell 5.5% on Friday after The Trump administration’s announcement late Thursday of its intent to apply tariffs on Mexican imports.

Copper prices moved lower last week on U.S. – China trade frictions and concomitant global growth concerns. Nickel and zinc prices rose on concerns of decreased inventory levels despite global growth concerns.

Gold prices moved higher, despite a slightly stronger U.S. dollar, on weaker U.S and global stock markets, concerns of lower global growth and lower interest rates.

Wheat, corn and soybean prices again moved higher with rain and flooding in the U.S. continuing to hinder plantings. Corn prices reached levels not seen in almost three years.

Coffee prices rallied again last week, supported by a much stronger Brazilian real and continued weather concerns. Sugar prices moved higher on the stronger real.

Coming up this week      

  • ISM and PMI manufacturing indexes on Monday.
  • International trade and jobless claims on Thursday.
  • Employment situation report 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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