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Research

Commodities and Precious Metals Update (Week ending November 8, 2019)

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

Key points

Another mixed week for energy prices. Natural gas prices increased the most, rising 2.5%, followed by WTI and Brent crude oil prices, up 1.8% and 1.3%, respectively.  Gasoline and heating oil prices decreased 0.7% and 0.6%, respectively, while gasoil prices declined 0.1%.

Grain prices were all lower with Chicago and Kansas wheat prices falling 1.1%, corn prices down 3.1% and soybean prices lower by 0.6%.

A mixed week for base metal prices as well.  Zinc and nickel prices fell while aluminum and copper prices increased.   Zinc prices declined 1.7% and nickel prices dropped 3.6%.  Copper and aluminum prices rose 1.1%.

Gold, silver and platinum prices all decreased last week.  Gold prices declined 3.0%, silver prices decreased 6.8% and platinum prices fell 5.0%.

The S&P GSCI outperformed the Bloomberg Commodity Index increasing 0.37% versus the Bloomberg Commodity Index declining 0.41%.  The S&P GSCI’s larger energy exposure and smaller precious metal exposure was primarily responsible for its outperformance.

Total assets in commodity ETPs fell $591.6m last week again driven primarily by gold outflows. Gold (-$575.3m), crude oil       (-$66.6m) and broad commodity (-$24.8m) ETP outflows were partially offset by silver ($50.8m)  and agriculture ($13.2m) ETP inflows.

Commentary

Stronger than expected U.S. economic and earnings reports, and increased expectations of a phase 1 agreement between the U.S and China pushed U.S stock markets, longer-term Treasury rates and the U.S dollar higher last week.   Early-week reports of a U.S-China partial agreement closing in November were revised to December and end-of-week push back from the Trump administration that tariffs would be reduced or dropped stalled U.S. equity markets. However, stronger-than-expected U.S. economic  and earnings reports – and despite increased expectations that the next rate move by the U.S. Federal Reserve bank will be a move higher – pushed the S&P 500 Index up 0.85% to an all-time high of 3093.08 while moving the 10-year U.S Treasury rate higher by 23 bps to 1.94% and strengthened the U.S. dollar by 1.2% (as measured by the DXY index).

Up up nearly 2% through Tuesday on optimism over a partial U.S.-China trade agreement, WTI oil prices fell 1.5% on Wednesday after the EIA reported a larger-than-expected build in U.S. oil reserves, OPEC failed to increase cutbacks and on reduced optimism regarding a U.S-China trade agreement.  Nonetheless, WTI oil prices retraced most of their mid-week losses on stronger-than-expected economic reports in the U.S., China and the EU and with an uptick in expectations of a U.S.-China phase 1 trade agreement.

Base metal prices behaved similarly to oil prices moving higher then lower then higher again with swinging expectations of a U.S.-China trade agreement and supported by stronger-than-expected economic reports in the U.S., China and the EU.   Zinc and nickel prices ended lower on the week, however, pressured by concerns of increased supply from Indonesia and China.

Gold, silver and platinum prices moved lower as both the U.S. dollar and U.S. Treasury rates moved higher last week on expectations of a U.S.-China partial trade agreement and on increased expectations that the next U.S. Federal Reserve Bank interest rate move will be higher.

Corn and soybean prices moved lower on forecasts of better weather for plantings in the U.S. and a neutral-to-slightly-bearish USDA WASDE report on Friday.  Corn prices also suffered from lower-than-expected export levels.. 

Coming up this week      

  • Light data week highlighted by CPI and PPI reports and Fed Chairman Jerome Powell speaking.
  • CPI and Jerome Powell testifies before the Congressional Joint Economic Committee Wednesday.
  • Jobless claims and PPI on Thursday.
  • Retail sales, import and export prices and industrial production on Friday.
  • EIA petroleum report on Thursday 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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