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Commodities and Precious Metals Update (Week ending November 1, 2019)

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

Key points

A mixed week for energy prices.  Natural gas prices increased the most, rising 9.4%, followed by gasoline prices, up 1.0%. Brent crude oil prices finished the week practically unchanged while WTI crude oil prices closed down 0.8%.  Gasoil and heating oil prices fell 2.8% and 1.9%, respectively.

Chicago wheat prices finished lower while Kansas wheat, corn and soybean prices moved higher.  Chicago wheat prices fell 0.3%, Kansas wheat prices increased 0.8%, corn prices rose 0.7% and soybean prices rose 0.2%.

Except for copper, base metal prices were all higher last week.  Aluminum prices increased 3.3%, zinc prices increased 0.7% and nickel prices rose 0.1%.  Copper prices fell 0.8%.

Gold prices edged lower while silver and platinum prices moved higher.  Gold prices declined 0.3%, silver prices increased 0.7% and platinum increased 0.4%.

The Bloomberg Commodity Index outperformed the S&P GSCI, increasing 0.99% versus the S&P GSCI increasing 0.19%.  the S&P GSCI’s larger energy exposure but smaller natural gas exposure and smaller grains exposure was primarily responsible for its underperformance.

Total assets in commodity ETPs decreased $131.1m last week driven primarily by gold outflows. Gold (-$136m), energy (ex-crude oil) (-$52.2m), silver (-$23.7m) and crude oil (-$19.5m) ETP outflows were partially offset by broad commodity ($110.8m)  ETP inflows.

Commentary

Starting the week with strong expectations of a partial trade agreement between the U.S. and China, U.S. stock markets and the 10-year Treasury rate both moved higher early in the week.   Wednesday’s FOMC decision to once again lower the Fed Fund’s target rate 25bps while at the same time hinting further rate reductions would be on hold combined with a lackluster 3rd quarter GDP report, moved 10-year U.S Treasury rates off their intraweek highs while U.S. stock markets seemed unfazed. A weaker-than-expected consumer spending number and reduced expectations of a U.S.-China trade agreement partially reversed gains in U.S. stock markets and pushed the 10-year Treasury even rate lower on Thursday.   Friday’s much-stronger-than-expected employment situation report – despite weaker-than-expected manufacturing data – pushed U.S. stock markets even higher and slightly increased the 10-year U.S. Treasury rate.  At week’s end the S&P 500 was up almost 1.5% to 3066.91, the 10-year U.S. Treasury rate was lower 8bps at 1.71% and the U.S. dollar (as measured by the DXY index) was weaker 0.6%.

WTI Crude oil prices, down over 4% through Thursday on increased oversupply concerns combined with global growth concerns, rose almost 4% on Friday after a much-stronger-than-expected employment situation report buoyed oil demand outlooks.  A weaker U.S. dollar also supported oil prices.  Natural gas prices moved higher on forecasts for cold weather throughout the U.S. in the coming weeks.

Lower on the week through Thursday on reduced expectations of a phase 1 trade agreement between the U.S. and China and on weak Chinese manufacturing data, base metal prices moved higher on Friday supported by both a stronger-than-expected U.S. employment situation report and a weaker U.S. dollar.  Copper prices were also affected by an improved supply outlook in Chile.

Pushed slightly lower by a strong U.S. employment situation report and the possibility the U.S. Federal Reserve bank is on hold with regards to further rate reductions, gold prices were nonetheless supported by a weaker U.S. dollar.   Silver and platinum prices moved higher with base metal prices and a weaker U.S. dollar.

Corn prices moved higher on delayed U.S. harvest concerns despite concerns of favorable weather for planting while soybean prices increased on reports of Chinese buying. 

Coming up this week      

  • Moderate data week with reports focusing on service sector strength and factory production, including auto sales.
  • Motor vehicle sales and factory orders on Monday.
  • International trade, PMI services index and ISM non-manufacturing index on Tuesday.
  • Jobless claims 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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