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Commodities and Precious Metals Update (Week ending November 15, 2019)

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

Key points

Except for natural gas prices, all energy prices increased last week.  WTI and Brent crude increased 1.0% an 1.3%, respectively, gasoil prices increased 2.5%, gasoline prices increased 0.6% and heating oil prices rose 1.6%. Natural gas prices fell 4.3%.

Grain prices were again all lower with Chicago and Kansas wheat prices falling 1.6% and 1.1%, respectively, corn prices down 1.5% and soybean prices lower by 1.4%.

Base metal prices were all lower as well.  Zinc and nickel prices declined the most falling 4.3% and 7.5%, respectively.   Copper and aluminum prices fell 1.5% and 3.1%, respectively.

Gold and silver prices increased while platinum prices fell last week.  Gold prices increased 0.2% and silver prices 0.4%.  Platinum prices fell 0.6%..

The S&P GSCI outperformed the Bloomberg Commodity Index again last week.  The S&P GSCI was unchanged while the Bloomberg Commodity decreased 0.99%.  The S&P GSCI’s larger energy exposure but smaller natural gas exposure and smaller grain and base metal exposure was primarily responsible for its outperformance.

Total assets in commodity ETPs fell $434.4m last week with no ETP inflows. Gold (-$246.0m), silver (-$60.5m), crude oil (-$44.3m), broad commodity (-$31.8m), agriculture (-$28.3m) and precious metal (ex-gold and silver) (-$15.8m) ETP outflows were responsible for the majority of ETP outflows.

Commentary

Tepid CPI and PPI inflation reports, on-again-off-again optimism of over a phase 1 U.S.-China trade agreement combined with Fed Chairman Jerome Powell’s comments that the U.S. Federal Reserve Bank is on hold right now but had adopted a wait-and-see approach left U.S. stock markets practically unchanged through Thursday while moving 10-year U.S. Treasury rates 12bps lower.   Renewed optimism over a U.S.-China trade agreement spurred by Trump administration comments and stronger-than-expected retail sales on Friday, pushed the S&P 500 Index almost a percent higher and moved 10-year U.S. Treasury rates a couple of basis points off their lows of the week.  At week’s end the S&P 500 increased 0.9% to 3120.46, 10-year U.S. Treasury rates fell 11bps to 1.83% and the U.S. dollar weakened 0.4% (as measured by the DXY index).

Down nearly 1% through Thursday last week on U.S.-China trade concerns and on a slightly stronger build in U.S. oil and gasoline inventories, WTI crude oil prices increased 1.7% on Friday on a much-steeper-than-expected decline in U.S. oil rigs.   Operational oil rigs, according the Baker Hughes report released on Friday, fell to levels last seen in April 2017.

Base metal prices moved lower over concerns of global growth in general and Chinese economic growth in particular.    Aluminum prices suffered from increasing concerns of plentiful supply with inventories at the LME greatly increasing.   Nickel prices, the worst performing base metal last week, were also pressured lower by increasing stockpiles – with Indonesia resuming exports – as well as increasing concerns of falling demand, in particular from China. Zinc prices also fell on oversupply and weakening demand concerns.

Gold and silver prices waffled during the week reacting to expectations the U.S. Federal Reserve Bank is on hold with respect to decreasing rates, fluctuating expectations of an imminent U.S.-China trade agreement and over concerns of the strength of the U.S. and global economies. 

Soybean prices moved lower on concerns of increased global supply and uncertainty of a phase 1 U.S-China trade agreement.  Wheat and corn prices, higher or unchanged through Tuesday/Wednesday fell the rest of the week over wavering expectations of a U.S.-China trade agreement.

Coming up this week      

  • Another light data week only accentuated with the release of the FOMC minutes on Wednesday.
  • Housing starts on Tuesday.
  • FOMC minutes on Wednesday
  • Jobless claims, Philadelphia Fed business outlook survery and existing home sales on Thursday.
  • Consumer sentiment 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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