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Commodities and Precious Metals Update (Week ending September 13)

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

Key points

Except for natural gas prices, energy prices were all lower last week. WTI and Brent crude oil prices decreased 2.9% and 2.2%, respectively. Gasoil prices fell 0.3% and gasoline and heating oil prices decreased 1.2% and 1.3%, respectively.   Natural gas prices increased 4.0%

Grains prices all moved higher last week. Chicago wheat prices increased 4.3%, Kansas wheat prices increased 1.7%, corn prices rose 3.7% and soybean prices gained 4.8%.

Base metal prices, too, were all higher last week.  Aluminum and nickel prices increased 0.9% and 0.5%, respectively and copper and zinc prices rose 2.4%.

Gold and silver prices ended the week lower while platinum prices increased again last week.   Gold and silver prices decreased 1.4% and 3.0%, respectively, while platinum prices increased 1.0%.

Live cattle prices increased 4.6% and lean hog prices increased 10.0%.  Cotton prices rose 6.3%.

The Bloomberg Commodity Index outperformed the S&P GSCI last with the Bloomberg Commodity index increasing 1.08% and the S&P GSCI falling 0.11%.   The Bloomberg Commodity Index’s smaller energy exposure but larger natural gas exposure combined with its larger exposure to grains, base metals and softs contributed to its outperformance.

Total assets in commodity ETPs decreased $531.5m last week, driven by outflows from gold and silver ETPs. Gold (-$627.7m) and silver (-$131.4m) ETP outflows were primarily offset by crude oil ($120.2m) and broad commodity ($99.1m) ETP inflows.

Commentary

Despite President Trump’s tweets requesting the U.S Federal Reserve Bank dramatically lower rates, higher-than-expected CPI and PPI numbers and better-than-expected retail sales, chain-store sales, consumer sentiment and  business inventories reports pushed 10-year interest rates higher by over 30bps and reduced the probability of a rate increase at this week’s FOMC meeting.  Up by 17bps through Wednesday, 10-year U.S Treasury rates initially dropped 5bps after the ECB’s unexpectedly large stimulus announcement on Thursday, only to reverse direction and increase 5bps after an unexpectedly robust CPI report.   Following Friday’s strong retail sales report, U.S. 10-year Treasury rates increased another 12bps to end the week up 34 bps at 1.90%.   At week’s end the S&P 500 Index was up 1.0% to 3,007.39 and the U.S. dollar (as measured by the DXY index) weakened 0.14%.

Oil prices, up 1.5% through Tuesday, were pressured lower after the resignation of John Bolton (the Trump administration’s national security advisor) despite Saudi Arabia announcing oil demand is robust and that production cuts would continue.  WTI oil prices moved lower through the remainder of the week with a larger-than-expected build in distillates and gasoline inventories announced on Wednesday and speculation President Trump would reduce or weaken sanctions on Iran.  

Base metal prices increased on increased expectations of a U.S.-China trade deal and market optimism global growth would be stronger than expected.

Gold and silver prices moved lower with reports the Trump administration was considering reducing sanctions on Iran, increased hopes of a U.S.-China trade agreement and lower expectations of rate reductions by the U.S. Federal Reserve Bank.

Grain prices moved higher on increased expectations of a U.S.-China trade agreement with China offering to increase imports of agricultural products as sign of good faith.  Corn prices also benefited from increased concerns over domestic harvest yields and wheat prices were supported by lower forecasts of global supply.

Lean hogs and cotton prices moved higher on the back of greatly increased expectations of China imports.

Coming up this week      

  • Busy data week highlighted by the 2-day FOMC meeting beginning Tuesday.
  • FOMC meeting begins and industrial production on Tuesday.
  • Housing starts, FOMC meeting announcement and forecast and Fed. Chariman Jerome Powell press conference on Wednesday.
  • Jobless claims, Phil. Fed. business outlook survey and existing home sales on Thursday.
  • 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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