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Commodities and Precious Metals Update (Week ending October 11, 2019)

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

Key points

Energy futures prices, except for natural gas prices, all moved higher last week.  WTI and Brent crude prices rose 4.1%, gasoil prices increased 3.9% and gasoline prices increased 4.7%.   Heating oil prices increased 3.3% while natural gas prices fell 2.2%.

Grain prices all finished higher. Chicago and Kansas wheat prices increased close to 3.7%, corn prices rose 3.4% and soybean prices gained 2.2%.

Base metal prices, except for nickel prices, were all higher last week.  Aluminum prices increased 0.3%, copper prices increased 2.6% and zinc prices rose 5.3%.   Nickel prices dropped 1.3%.

Gold and silver prices fell last week while platinum prices rose. Gold prices decreased 1.3% and silver prices declined 0.5%.  Platinum prices increased 1.7%.

The S&P GSCI outperformed the Bloomberg Commodity Index, with S&P GSCI increasing 2.66% versus the Bloomberg Commodity Index increasing 1.19%.  The S&P GSCI’s larger energy exposure and smaller natural gas and precious metal exposure was primarily responsible for its outperformance.

Total assets in commodity ETPs rose $347.6m last week, driven primarily by inflows into gold ETPs but also by smaller inflows into almost all other ETP categories.  Gold ($283.2m), silver ($32.3m), precious metals (ex-gold and silver) ($19.5m), broad commodity ($22.8m) and energy (ex-crude oil) ($26.2m) ETPs all had inflows.  Crude oil (-$49.3m) ETP outflows were the only substantial outflows last week.

Commentary

Concerns of weak U.S. economic growth spurred by the previous week’s weaker-than-expected ISM manufacturing report and exacerbated by growing concerns of increased trade frictions between the U.S. and China pushed U.S. stock markets lower and strengthened the U.S. dollar early last week.   The Trump administrations’ announcement that it would prevent a number of Chinese companies and police departments from buying U.S. technology and that it was considering banning certain Chinese officials from entering the U.S. because of human rights violations pushed the S&P 500 Index 2% lower and strengthened the U.S. dollar 0.3% through Tuesday.   The release of FOMC minutes on Wednesday,  comments from various Fed officials reaffirming the U.S. Federal Reserve Bank would continue to act to maintain the expansion and the Fed’s announcement it would increase its balance sheet by buying short-term Treasuries helped move U.S. stock markets off their intra-week lows through the remainder of the week.   Reports on Thursday that President Trump would meet with Vice Premier Liu on Friday and the announcement that a partial trade agreement had been reached with China on Friday, pushed U.S. stock markets and U.S. Treasury rates higher and weakened the U.S. dollar. At week’s end the U.S dollar had weakened 0.5%, 10-year U.S Treasury rates finished 20bps higher at 1.73% and the S&P 500 Index rose 0.6% to 2970.27.

Despite an apparent missile attack on an Iranian oil tanker, oil prices, reacting to negative news surrounding U.S.-China trade relations, moved slightly lower early in the week, only to rally Thursday and Friday following the Trump’s administration announcement of a partial trade agreement with China on Friday and a better-than-expected EIA inventory report on Wednesday.

Similarly, copper and zinc prices, lower or unchanged through Wednesday, moved higher on positive news surrounding U.S.-China trade negotiations on Thursday and Friday.   Nickel prices moved lower on speculation China would release supply following the recent rally in Nickel prices on the back of Indonesia banning nickel ore exports.

Gold and silver prices, supported by FOMC minutes released on Wednesday moved lower, too, following positive news regarding U.S.-China trade negotiations on Thursday and Friday and following comments from Dallas Fed President Kaplan warning investors should not consider the Fed’s recent rate reductions as the beginning of a “full fledged cutting cycle.”

Corn, wheat and soybean prices rose on the back of Thursday’s USDA WASDE report reducing U.S. inventory levels. Grain prices, particularly soybean prices, were also supported by positive trade negotiation developments between the U.S. and China.

Coming up this week      

  • Light Columbus-Day data week with most data released on Thursday.
  • Empire state manufacturing survey on Tuesday.
  • Retail sales on Wednesday.
  • Housing starts, jobless claims, Phil. Fed business outlook survey and industrial production on Thursday.
  • 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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