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Research

Commodities and Precious Metals Update (Week ending October 25, 2019)

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

Key points

A reversal of last week with all energy prices higher except for natural gas.  WTI and Brent crude oil prices increased 5.4% and 4.5%, respectively, gasoil prices increased 2.2%, gasoline prices increased 4.0% and heating oil prices rose 2.4%.   Natural gas prices decreased 2.8%.

Grain prices were all lower with wheat prices down between 2.5% and 2.7%, corn prices down 1.1% and soybean prices lower 1.4%.

Base metal prices, except for aluminum prices, were all higher last week.  Copper prices increased 1.5%, zinc prices increased 2.4% and nickel prices rose 3.4%.   Aluminum prices decreased 0.72%.

Gold, silver and platinum prices all moved higher last week with platinum prices gaining the most.  Gold prices rose 1.6%, silver prices increased 2.0% and platinum price jumped higher 5.1%.

The S&P GSCI outperformed the Bloomberg Commodity Index, increasing 2.38% versus the Bloomberg Commodity Index increasing 1.09%.  Factors that caused the S&P GSCI to underperform the previous week, helped it to outperform last week with the S&P GSCI’s larger energy exposure but smaller natural gas exposure primarily responsible for its underperformance.

Total assets in commodity ETPs fell for the first time in a number of weeks.  Driven mainly by gold ETP outflows, total assets declined $303.1m last week.  Gold (-$215.1m), crude oil (-$66.9m) and silver (-$53.4m) ETP outflows were partially offset by energy (ex-crude oil) ($30.1m) ETP inflows.

Commentary

Buoyed by increased optimism of a U.S.-China trade agreement, overall better-than-expected U.S. earnings reports and continued expectations of U.S. Federal Reserve Bank easing, the S&P 500 Index increased 1.2% to 3022.55, just shy of its record in late July of 3025.86.   The U.S. dollar strengthened over the week, despite U.S. Federal Reserve Bank easing expectations, on the back of weak economic reports from the EU and China.  At week’s end the U.S. dollar (as measured by the DXY index) strengthened 0.6% and 10-year U.S Treasury rates increased 4.5bps to 1.80%.

WTI Crude oil prices, lower on Monday on global growth/demand concerns, rose the remainder of the week as a result of renewed optimism of a U.S.-China trade agreement with reports President Trump would meet with Chairman Xi at the APEC meeting next month, OPEC’s announcement it would meet next month to discuss additional production cutbacks and a larger-than-expected drawdown in U.S oil inventories and distillates.

Most base metal prices moved higher last week supported by renewed optimism of a U.S.-China trade agreement and despite a stronger U.S. dollar.   Copper prices also strongly benefited from labor unrest/strikes at Chilean mines and ports affecting production at the world’s largest producer of the metal.  Nickel prices reversed course, rising on reduced concerns of increased supply conditions.

Gold prices supported by concerns of weak global growth and continued easing by major economies’ central banks moved higher on the week.   Silver and platinum prices moved higher with gold prices but were also supported by optimism of a U.S.-China trade agreement increasing industrial demand. 

Soybean prices, slightly higher through Wednesday on expectations of increased China imports, fell 1.3% on Friday on lower-than-expected export numbers and skepticism over actual China purchases.  Wheat prices declined with favorable planting weather conditions in the U.S.

Coming up this week      

  • Busy data week highlighted by a 2-day FOMC meeting beginning Tuesday, first estimate of Q3 GDP on Wednesday and the employment situation report on Friday.
  • Intenational trade in goods on Monday.
  • FOMC meeting begins and consumer confidence on Tuesday
  • First estimate Q3 GDP, FOMC meeting announcement and Jerome Powell press conference on Wednesday.
  • Jobless claims, personal income and outlays, employment cost index and Chicgao PMI on Thursday.
  • Employment situation report, PMI and ISM manufacturing indexes 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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