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Commodities and Precious Metals Update (Week Ending Jan. 11)

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

Key points 

  • Another good week for the energy sector, with all components ending higher. WTI and Brent crude oil prices gained 7.6% and 6.0%, respectively. Heating oil prices increased 6.3% and gasoline prices rose 4.0%.  Gasoil prices, newly added to the Bloomberg Commodity Index, increased 7.6% and even natural gas prices rose, gaining 1.4%.
  • Base metal prices were all higher last week except for aluminum.  Nickel and zinc prices increased 3.1% and 2.3%, respectively. Copper prices rose 0.6% while aluminum prices fell 1.9%.
  • Grain prices were mostly lower last week.  Kansas wheat prices fell 0.3%, and corn and soybean prices fell 1.2%.   Chicago wheat ended the weak up 0.5%.
  • Gold and platinum prices posted positive performances while silver prices fell. Gold prices ended the week up about 0.7%, and platinum prices were up 2.8%.  Silver prices fell -0.8%.
  • Once again, supported by strong energy sector performance, the S&P GSCI strongly outperformed the Bloomberg Commodity Index last week with the S&P GSCI up 4.04% versus up 1.74% for the Bloomberg Commodity Index.
  • Total assets in commodity ETPs fell slightly, decreasing $6.8m. Gold ($284.1m) and crude oil ($37.4m) ETP inflows were primarily offset by broad commodity (-$265.3m) and silver (-$54.5m) ETP outflows.

Commentary

Buoyed by US-China trade talk progress, FOMC minutes indicating a more flexible U.S. Federal Reserve Bank and a weaker-than-expected CPI number, the S&P 500 increased 2.5% and the U.S. dollar weakened 0.57%.  Weaker by almost a percent through Wednesday, the U.S. dollar strengthened after weaker-than-expected Chinese inflation numbers were released on Thursday and after U.S.-China Trade talks ended on Friday with no definitive agreement.

Up 9.6% through Thursday on the back of larger-than-expected production cutbacks by Saudi Arabia and reports of U.S.- China trade talk progress, WTI oil prices retreated after a disappointing EIA report showing a large inventory build in product supply and after weaker-than-expected Chinese inflation numbers and after U.S.-China Trade talks ended on Friday with no definitive agreement.

Gold prices were mainly supported by a weaker U.S dollar.  Wednesday’s FOMC minutes indicating the U.S Federal reserve bank would be more accommodative and reports of good progress in U.S.- China trade talks helped push the U.S dollar lower.  

A weaker dollar pressured by hopes of a U.S.-China trade agreement and FOMC minutes indicating the U.S. Federal Reserve Bank would be more accommodative pushed most base metal prices higher.    Aluminum prices, the sole exception, were pushed lower on expectations sanctions on Rusal may be removed or reduced shortly.

Wheat prices were pushed lower on larger-than-expected Russian exports, reducing demand forecasts for U.S. wheat while soybean prices fell after U.S.-China trade talks ended with no specific details on China’s commitment to purchase U.S. soybeans and after larger-than-expected Brazilian production.  Corn prices, too, declined on U.S.-China trade talks ending with no specific agreement.

Coming up this week      

  • Decent data week beginning with PPI and ending with industrial production.
  • PPI Tuesday morning.
  • Retail sales on Wednesday and housing starts and jobless claims on Thursday.
  • Industrial production 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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