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Commodities and Precious Metals Update (Week ending September 06)

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

Key points

Energy prices were all higher again last week. Natural gas prices again increased the most, rising 8.9%. WTI and Brent crude oil prices rose 2.8% and 3.9%, respectively. Gasoil prices increased 2.9% and gasoline and heating oil prices increased 3.4%.   

Grains prices, except for Chicago wheat, fell last week. Kansas wheat prices decreased 1.0%, corn prices fell 3.9% and soybean prices decreased 1.3%.  Chicago wheat prices increased 0.3%.

Base metal prices, except for nickel prices, were all higher last week.  Aluminum and copper prices increased 2.1% and 3.2%, respectively and zinc prices rose 5.6%.   Nickel prices fell 1.4%.

Gold and silver prices ended the week lower while platinum prices increased.   Gold and silver prices decreased 0.3% and 1.2%, respectively, while platinum prices increased 0.9%.Live cattle prices fell 4.1%.

Live cattle prices fell 4.1%.

The S&P GSCI outperformed the Bloomberg Commodity Index last week mainly because of its larger exposure to energy.   The S&P GSCI increased 1.90% while the Bloomberg Commodity Index increased 1.18%.  The S&P GSCI’s smaller exposure to grains and precious metals also helped it to outperform.

Total assets in commodity ETPs increased $637.6m last week, driven again by large inflows into gold ETPs. Gold ($723.9m) and precious metals (ex-gold and silver) ($8.1m) ETP inflows were offset by broad commodity (-$19.6m), crude oil  (-$15.8m), energy (ex-crude oil) (-$27.9m) and silver (-$18.7m) ETP outflows.

Commentary

Returning Tuesday from a long holiday weekend, U.S. stock and commodity markets moved lower as global and U.S. growth concerns, prompted by tweets from President Trump, increased.  Following Hong Kong’s announcement it would no longer support the extradition bill, the U.K’s Parliament taking steps to prevent a no-deal Brexit and reports U.S. and China officials were arranging the resumption of trade talks, commodity and U.S. and global stock markets rallied while the U.S dollar weakened.   A slightly weaker-than-expected U.S. employment report on Friday combined with a below-50 ISM manufacturing index increased market expectations of a rate decrease later this month, supporting commodity and U.S. stock markets.  At week’s end the S&P 500 Index was up 1.8%, the U.S. dollar weakened 0.9% and 10-year U.S. interest rates increased 6bps to 1.56%

After falling 2% on Tuesday, WTI crude oil prices moved higher the remainder of the week supported by a much-larger-than-expected drawdown in U.S. oil inventories, signs of rapprochement between the U.S. and China, a substantially weakened hurricane Dorian as well as by a weaker U.S. dollar.

Base metal prices moved higher on the back of a weaker U.S dollar, stimulative measures implemented in China and reports U.S. and China were working to resume trade talks. 

Gold and silver prices moved lower mainly as a result of reduced geo-political tensions despite a weaker U.S. dollar and continued expectations the U.S. Federal reserve will continue to lower interest rates.

Wheat prices continued to suffer from global oversupply concerns while soybean prices moved lower on skepticism of progress on a U.S.-China trade deal.  Corn prices moved lower on lower-than-expected exports and concerns of reduced demand in general.

Live cattle futures prices fell steeply on Friday following declines in spot and wholesale beef prices.

Coming up this week      

  • Very light data week but punctuated with PPI (Wednesday) and CPI (Thursday)
  • PPI on Wednesday.
  • CPI and jobless claims on Thursday.
  • Retail sales and 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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