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Commodities and Precious Metals Update (Week ending December 13, 2019)

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

Key points

Except for natural gas prices, energy prices all moved higher last week.  WTI and Brent crude oil prices increased 1.5% and 1.4%, respectively.  Gasoil and heating oil prices rose 1.2% and 1.8%, respectively and gasoline prices increased 0.9%.  Natural gas prices decreased 0.9%.

Grain prices were all higher last week.  Chicago and Kansas wheat prices increased 1.5% and 2.7%, respectively.  Corn and soybean prices rose 1.1% and 2.0%, respectively.   Soybean oil increased 4.4%..

Base metal prices were all higher last week as well.   Nickel prices increased the most, rising 5.1%, followed by copper prices which increased 2.1%.   Aluminum prices increased 0.1% and zinc prices gained 0.7%.

Gold, silver and platinum prices increased last week with platinum prices increasing the most.  Gold prices rose 0.5%, silver prices increased 2.5% and platinum prices gained 3.9%.

The Bloomberg Commodity Index increased again last week, rising 1.53%.  All sectors contributed to the increase with the agriculture and base metal sectors accounting for almost half of the increase.

Coffee prices increased 6.0%.

Total assets in commodity ETPs increased $218.6m last week. Gold ($80.7m), broad commodity ($75.6m) and energy (ex-crude oil) ($80.5m) ETP inflows were slightly offset by silver (-$25.3m) ETP inflows.

Commentary

Approaching U.S trade tariff deadlines, continued uncertainty of a phase one U.S.-China trade agreement, CPI and PPI reports, the FOMC meeting and UK elections all added to a jittery start of the week.  10-year U.S. Treasury rates, unchanged at 1.84% through Tuesday after an as-expected CPI report, fell 5bps on Wednesday after the U.S. Federal Reserve bank said it would maintain the current Fed funds target rate unless there was a significant outlook change.   President Trump’s announcement on Thursday that he had signed off on the trade agreement caused 10-year U.S. Treasury rates to reverse course and increase 10bps to 1.89% only to reverse course again on Friday after China confirmed there was an agreement and after a benign retail sales report  pushing 10-year Treasury rates down 7bps to 1.82%.   The S&P 500 index moved lower early in the week, also affected by the uncertainty surrounding the FOMC meeting and the prospects of a U.S.-China trade deal.   Down 0.4% through Tuesday, the S&P 500 Index increased 1.2% the remainder of the week after the announcement of a trade agreement and a “steady-as-she-goes” policy annunciated by Fed Chairman Jerome Powell.   At week’s end the S&P 500 Index increased 0.7% to 3168.8, 10-year U.S. interest rates fell 1bp to 1.82% and the U.S. dollar (as measured by the DXY index) weakened 0.5%.

WTI crude oil prices, unchanged through Tuesday, fell 2% on Wednesday after a much larger-than-expected build in U.S. oil inventories.  Thursday’s announcement by Pres. Trump of a phase one U.S.-China trade agreement and Friday’s confirmation of the agreement by China helped move oil prices up 1.5% from Wednesday’s low.

Base metal prices, in particular copper prices, benefited from the U.S.-China phase one trade agreement, stronger-than-expected Chinese economic data and a weaker U.S. dollar.

Gold, silver and platinum prices remained firm despite the phase one U.S.-China trade agreement, perhaps supported by market concerns surrounding the next stage of trade negotiations and the FOMC’s announcement on Wednesday that a rate rise would only come if inflation increased beyond the Federal Reserve banks target level.  

The completion of the USMCA as well as the phase one trade agreement with China helped increase investor demand for grains along with near-record sales to Mexico (corn sales) and China (soybeans sales) reported last week.  

Coffee prices up nearly 10% through Thursday on supply shortages in Brazil, sold off almost 5% on Friday.  Reports that coffee suppliers may default on much-lower priced contracts may have affected markets on Friday.

Coming up this week      

  • Fairly busy data week with PCE price index and the final estimate of third quarter GDP both released at the end of the week.
  • Markit services and manufacturing PMI flash on Monday.
  • Housing starts and industrial production on Tuesday.
  • Jobless claims, Philadelphia Fed manufacturing index and existing home sales on Thursday.
  • Personal income, PCE price index, Q3 final GDP number and Michigan consumer sentiment report 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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