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Research

Commodities and Precious Metals Update (Week Ending Jan. 25)

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

Key points 

  • The energy sector finished lower last week with all component prices declining.  Natural gas and gasoline prices fell the most, decreasing 5.2% and 4.2%, respectively.  Gasoil and heating oil prices both fell 1.1% while WTI and Bent crude oil prices lost 0.7% and 1.5%, respectively.
  • Base metal had another good week. Aluminum and zinc prices increased 2.4% and 3.8%, respectively, and copper and aluminum prices both rose 2.1%.
  • Grain prices were generally higher last week. Wheat prices were up between 0.4% and 0.7% and soybean prices increased 0.9%. Corn prices decreased 0.4%.
  • Gold, silver and platinum prices all moved higher last week. Gold prices rose 0.8% and silver and platinum prices increased 2.0% and 2.3%, respectively.
  • The Bloomberg Commodity Index outperformed the S&P GSCI last week with the Bloomberg Commodity Index down 0.33% vs versus down 0.80% for the S&P GSCI.  The Bloomberg Commodity Index’s larger lower exposure to energy and higher exposure to base and precious metals was primarily responsible for its outperformance.
  • Total assets in commodity ETPs fell 8.5m last week. Gold ($208.0m) were mainly offset by broad commodity (-$126.6m), and crude oil (-$111.9m) ETP outflows.

Commentary

Reports on Friday the Federal Reserve Bank would end its balance sheet wind-down sooner than expected help weaken the U.S dollar and supported U.S. stock markets.  Through Thursday of last week, the U.S. dollar was stronger by almost 0.3% and the S&P 500 Index was lower by just over 1%, mainly on the back of Tuesday’s IMF downgrade of global growth from 3.7% to 3.5%.   At week’s end the U.S. dollar was lower by 0.6%, the S&P 500 Index lost 0.2% and 10-year U.S. interest rates were lower by 3bps at 2.76%. 

Lower by over 2.5% through Wednesday on continued concerns of U.S. oil supply and lower IMF global growth forecasts, WTI crude increased a little over 2% on the back of a weaker U.S. dollar and over fresh concerns of Venezuelan oil production after reports President Trump was considering additional sanctions.

Base metal prices, too, were supported by a weaker U.S. dollar as well as increased expectations of U.S.–China trade agreement.   Copper, down by 2.7% through Thursday, particularly benefited from the above.

Gold prices, lower through Thursday, rose on a weaker U.S dollar brought about by Friday’s reports the U.S. Federal Reserve Bank would end its balance sheet wind down sooner than expected.  Silver and platinum prices rose with base metal prices.   

Wheat and soybean prices moved higher on continued hopes of a U.S-China trade agreement and a weaker U.S dollar.  Corn prices were pressured by forecasts of greater-than-forecast planting.

Coming up this week      

  • Busy data week highlighted by the two-day FOMC meeting beginning Tuesday and the employment report on Friday.
  • FOMC meeting begins and international trade in goods on Tuesday.
  • Q3 GDP final estimate, FOMC announcement and Fed Chairman Jerome Powell press conference on Wednesday.
  • Jobless claims and personal income and outlays on Thursday.
  • Employment situation report and ISM manufacturing index 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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