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Commodities and Precious Metals Update (Week ending September 20)

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

Key points

Except for natural gas prices, energy prices were all higher last week. WTI and Brent crude oil prices increased 6.0% and 6.1%, respectively. Gasoil, gasoline and heating oil prices increased 6.8%, 7.3% and 5.6%, respectively.   Natural gas prices fell 3.7%

Grain prices, except for soybean prices, all moved higher last week. Chicago wheat prices edged up 0.2%, Kansas wheat prices increased 0.8% and corn prices rose 0.5%.  Soybean prices fell 1.8%.

Base metal prices were all lower last week.  Aluminum and nickel prices decreased 0.3% and 1.3%, respectively and copper and zinc prices fell 3.5% and 3.3%, respectively

Gold and silver prices ended the week higher while platinum prices fell.   Gold and silver futures prices increased 1.0% and 1.6%, respectively, while platinum prices decreased 1.7%.

The S&P GSCI strongly outperformed the Bloomberg Commodity Index last week with the S&P GSCI increasing 3.32% and Bloomberg Commodity index increasing 0.67%.  The S&P GSCI’s larger energy exposure but smaller natural gas and base metal exposure was primarily responsible for its outperformance.

Total assets in commodity ETPs increased $957.6m last week, driven by large inflows into gold ETPs.  Gold ($1,110.6m) ETP inflows were partially offset by silver (-$71.3m), crude oil (-$43.5m), broad commodity (-$28.1m) and energy (ex-crude oi) (-$31.3m) ETP outflows.

Commentary

Dominated by news of attacks on Saudi oil processing facilities, U.S. Federal Reserve Bank repo operations and the FOMC meeting, U.S. stock markets and the U.S. dollar remained relatively calm while 10-year U.S. interest rates moved lower off their recent highs. Reducing the Fed Funds target rate range 25bps (to 1.75% – 2.00%) for the second time this year, Fed Chairman Jerome Powell stated the U.S. Federal Reserve Bank will continue to act to sustain the economy while adding the target range was reduced as insurance against ongoing risks.   The U.S. Federal Reserve Bank was forced to enter into overnight repo operations with banks four times last week to inject much needed liquidity and keep the Fed Funds effective rate within the target range.   The repo operations, though unusual, did not affect other markets.   The attacks on Saudi oil processing facilities moved oil prices significantly higher and helped move U.S. Treasury rates lower and gold prices higher as investors sought haven investments.   At week’s end, the S&P 500 Index was practically unchanged at 2992.07, the U.S. dollar strengthened 0.3% and 10-year U.S. Treasury rates were down 18bps to 1.72%.

WTI oil prices surged over 14% on Monday after attacks on Saudi oil facilities the previous weekend, only to drop almost 6% on Tuesday following significantly reduced damage and repair time  estimates.   Oil prices dropped about another 2% the remainder of the week as a result of a much larger-than-expected increase in U.S. inventories and despite U.S. and Saudi Arabia determining Iran was responsible for the attacks.

Weakness in Chinese home price data, a reduction in the OECD’s global growth forecast and a stronger U.S. dollar helped move base metal prices lower last week.

Gold and silver prices moved higher on the back of increased tensions in the Mid-East and as a result of continued concerns of weak global growth. 

Wheat and corn prices moved higher on increased exports while soybean prices suffered perhaps as a result of the Chinese delegation visiting the U.S. cutting its visit short.

Coming up this week      

  • Decent data week accentuated with the third estimate of 2nd quarter GDP on Thursday and durable goods orders on Friday.
  • Consumer confidence on Tuesday.
  • New home sales on Wednesday.
  • Jobless claims and 2nd quarter GDP (third estimate) on Thursday.
  • Durable goods orders and personal income and outlays 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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