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Commodities and Precious Metals Update (Week ending August 16)

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

Key points

All components of the energy sector, except for Brent crude oil, finished higher last week.  WTI crude oil prices decreased 0.6% and gasoil, gasoline and heating oil prices increased 0.6%, 0.2% and 0.3%, respectively.  Natural gas prices increased 2.6%. Brent crude oil prices decreased slightly, falling 0.1%.   

The grain sector was the worst performing sector last week. Chicago and Kansas wheat prices fell 4.8% and 5.5%, respectively, and soybean prices ended 1.4% lower.  Corn prices sharply decreased, falling 8.9%.

Base metal prices were all higher last week.  Aluminum and zinc prices both increased 1.1% and copper prices increased 0.2%.   Nickel prices gained 4.2%.

Gold and silver prices increased last week while platinum prices fell.  Gold and silver prices increased 1.2%. Platinum prices fell 3.5%.

The S&P GSCI slightly underperformed the Bloomberg Commodity Index last week.  The S&P GSCI decreased 0.85% while the Bloomberg Commodity Index decreased 0.80%.  The S&P GSCI’s larger exposure to energy and smaller exposure to precious metals was the primary reasons for its slight underperformance.

Total assets in commodity ETPs increased $444.8m last week. Gold ($404.8m) and silver ($248.2m) ETP inflows were primarily offset by broad commodity (-$145.7m) and crude oil (-$61.2m) ETP outflows.

Commentary

A volatile week for U.S. stock markets and U.S. interest rates resulting from quickly changing expectations of global growth and U.S-China trade relations.  Down over 1% on Monday over concerns of worsening U.S –China trade relations as well as concerns surrounding protests in Hong Kong, the S&P 500 Index rose more than 1% on Tuesday as President Trump delayed the implementation of some tariffs on Chinese imports.   Weak economic reports from both Germany (negative growth) and China (lower-than expected industrial production and retail sales numbers and higher-than-expected jobless rate) combined with the inversion of  U.S. yield curve from 2-10 years drove the S&P 500 Index down nearly 3%  and pushed 10-year U.S. Treasury rates 12bps lower on Wednesday.   Stronger-than-expected U.S economic numbers (higher-than-expected retail sales, CPI and building permits) on Thursday and Friday and statements from major investment banks downplaying recession risk helped move the S&P 500 Index a little over 1.5% higher from Wednesday’s lows.  At week’s end the S&P 500 Index was down 1.0% at 2,888.68, the 10-year U.S. Treasury rate fell 19bps to 1.55% and the U.S. dollar strengthened 0.6%.

A volatile week for crude oil prices as well.  Up more than 5% through Tuesday following President Trump’s announcement that some tariffs on Chinese imports would be delayed, WTI Crude oil prices fell almost 5% over the next two days (Wednesday through Thursday) after a much-larger-than-expected increase in U.S. oil inventories and much-weaker-than-expected economic reports from Germany and China.   

Though higher on the week, copper and zinc prices finished well off Tuesday’s closing levels as optimism over delayed U.S. tariffs on some Chinese imports was replaced with concerns of weakening economic growth after weaker-than-expected economic reports from Germany and China.  Nickel prices continued to benefit from concerns over supply from Indonesia.

Gold prices generally moved higher throughout the week supported mainly by concerns of weaker global growth, an inverted 2-10 year U.S. yield curve and geo-political tensions involving Hong Kong.

Corn and wheat prices moved sharply lower through Tuesday, with corn prices closing limit down on Monday after the USDA’s WASDE report showed higher-than-expected plantings and better-than-expected outlooks for yields and production.  Grain prices increased on Friday perhaps on short-covering going into the weekend.

Coming up this week      

  • Very light data punctuated with the release of FOMC minutes on Tuesday and Fed Chairman Jerome Powell’s speech on Friday in Jackson Hole.
  • Existing homes sales and FOMC minutes on Tuesday.
  • Jobless claims on Thursday.
  • New home sales and Fed. Chairman Jerome Powell’s speech in Wyoming 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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