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Commodities and Precious Metals Update (Week ending December 6, 2019)

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

Key points

Energy prices all moved higher last week.  WTI and Brent crude oil prices increased the most, gaining 7.3% and 5.9%, respectively.  Gasoline and heating oil prices rose 3.5% and 3.9%, respectively and natural gas and gasoil prices increased 2.3% and 2.8%, respectively.

Wheat and corn prices fell while soybean prices increased last week.  Chicago wheat prices fell 3.2%, Kansas wheat prices fell 3.6% and corn prices declined 1.2%.  Soybean prices increased 1.5%.

Except for copper prices, base metal prices were all lower.  Aluminum prices dropped 0.7%, zinc prices fell 1.9% and nickel prices lost 1.5%.   Copper prices gained 2.4%.

Silver prices ended lower, gold prices were unchanged and platinum prices increased.   Silver prices decreased 2.4% while platinum prices increased 0.5%.

The Bloomberg Commodity Index increased 1.49%.  Good performance in the energy sector was offset primarily by weak performance in the base and precious metal sectors.

Total assets in commodity ETPs fell $699.8m last week. Gold (-$448.4m), broad commodity (-$98.1m), crude oil (-$98.3m), silver (-$54.7m) and agriculture (-$15.7m) ETP outflows were slightly offset by energy (ex-crude oil) ($29.7m) ETP inflows.

Commentary

U.S. stock markets moved lower Monday and Tuesday last week following statements from  President Trump threatening steel tariffs on Brazil and Argentinia, promising repercussions to France’s digital tax and allowing for the possibility of U.S-China trade negotiations dragging on through 2020.   Conversely, 10-year U.S. Treasury rates moved higher on Monday after better-than-expected manufacturing data from China, then moved sharply lower on Tuesday following President Trump’s comments regarding U.S.-China trade negotiations and weaker-than-expected U.S. manufacturing data.  Reports on Wednesday that a U.S.-China trade agreement was very close, all but erasing concerns raised Tuesday, and stronger-than-expected non-manufacturing data moved 10-year U.S. Treasury rates and U.S. stock markets higher.  Lower-than-expected initial jobless claims on Thursday and a much-stronger-than expected employment situation report on Friday pushed U.S. stock markets and 10-year U.S. Treasury yields higher through the remainder of the week.   At week’s end the S&P 500 was up 0.2% to 3145.91, 10-year U.S. Treasury rates increased 6bp to close at 1.84% and the U.S. dollar (as measured by the DXY index) weakened 0.6%.

WTI crude oil prices increased almost 6% through Wednesday in anticipation of both an extension and increase in OPEC+ oil production cutbacks (OPEC+ met Thursday October 5).   After OPEC announced production cutbacks would be increased by 500,000 bpd to 1.7 million bpd, WTI crude oil prices increased another 1.3%.  

Base metal prices were lower (in the case of copper prices, unchanged) through Thursday last week on supply and U.S.-China trade concerns.  Friday’s much stronger-than-expected employment situation report and weaker U.S. dollar moved all base metal prices off their lows but still lower on the week, except for copper prices.

Stronger-than-expected U.S and Chinese economic data, increased optimism over a U.S.-China trade agreement and growing expectations the U.S. Federal Reserve Bank may not change the Fed Funds target rate till the end of next year pressured gold and silver prices lower.  

Soybean prices moved higher on stronger-than-expected U.S. and Chinese economic data as well as on positive statements from both the U.S. and China regarding a trade agreement before December 15th. Wheat and corn prices moved lower with lower export demand. 

Coming up this week      

  • Light data week highlighted by a 2-day FOMC meeting and inflation  and retail sales reports.
  • FOMC meeting begins and unit labor costs revision on Tuesday.
  • CPI, FOMC meeting announcement and Fed Chairman Jerome Powell’s press conference on Wednesday.
  • Jobless claims and PPI on Thursday.
  • Retail sales 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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