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Commodities and Precious Metals Update (Week ending January 10, 2020)

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

Key points 

 

Energy prices, except for natural gas prices, were all lower last week. WTI and Brent crude oil prices fell 6.1% and 5.3%, respectively.   Gasoil and heating oi prices dropped 4.7% and 6.3%, respectively and gasoline prices decreased 5.2%.  Natural gas prices rose 2.7%.

Grain prices were mainly higher. Chicago and Kansas wheat prices increased 1.8% and 4.2%, respectively and soybean prices increased 0.5%.  Corn prices decreased slightly, falling 0.2%.

Base metal prices, except for aluminum prices, all increased last week.  Zinc and nickel prices both rose 3.1% and copper prices increased 1.0%.  Aluminum prices decreased 1.2%..

Gold prices rose while silver and platinum prices fell.   Gold prices finished the week up 0.3%, silver prices fell 0.3% and platinum prices decreased 1.4%.

The Bloomberg Commodity Index decreased 0.78% last week.   The energy sector was the sole reason the index decreased with all other sectors increasing over the week.

Total assets in commodity ETPs fell last week.  Gold (-$768.4mm) and silver (-$81.6m) ETP outflows were partially offset by crude oil ($323.4m), broad commodity ($53.5m) and energy (ex-crude oil) ($34.2m) ETP inflows.

Commentary

Though markets started the week with heightened concerns regarding possible Iran retailiatory actions against a U.S. airstrike killing IRGC general Soleimani, U.S. stock markets, 10-year U.S. Treasury rates and the U.S. dollar moved slightly higher through Tuesday.  Overnight reports on Tuesday of Iranian missile attacks on U.S. bases in Iraq drove U.S. and global stock markets significantly lower before U.S. stock markets opened on Wednesday.  President Trump’s speech before the nation late Wednesday morning defused tensions surrounding the U.S. and Iran and U.S. stock markets moved higher yet again through Thursday.   Friday’s good-but-slightly-weaker-than-expected payroll report pushed U.S. stock markets off their highs and pushed the 10-year Treasury rate and the U.S. dollar slightly lower as well.   At week’s end the S&P 500 Index increased 1.2% to 3265.35, the 10-year U.S. Treasury rate increased 3bp to 1.82% and the U.S. dollar (as measured by the DXY index) strengthened 0.5%.

WTI crude oil prices, up on Monday, moved lower the rest of the week, falling with reduced tensions between the U.S. and Iran.  In particular, WTI crude oil prices fell just under 5% on Wednesday following President Trump’s speech reducing heightened concerns of conflict between the U.S and Iran and then drifted lower the remainder of the week.

Despite a stronger U.S. dollar, most base metal prices moved higher on the back of greatly reduced concerns surrounding U.S.-Iran tensions and as a result of continued optimism regarding U.S.-China trade relations.   Concerns of increased China aluminum production pushed aluminum prices lower.

Gold prices continued to mover higher last week despite reduced concerns of an immediate U.S-Iran conflict.  A slightly weaker-than-expected U.S. employment situation report showing subdued wage inflation along with residual geopolitical concerns helped support gold prices. 

Lower through Tuesday, grain prices moved higher the remainder of the week after President Trump’s speech Wednesday seemingly defusing U.S.-Iran tensions, after reports of global wheat export prices increasing and as a result of continued optimism regarding U.S.-China trade relations.     Friday’s USDA WASDE report showing larger-than-expected global supply numbers did not push grain prices lower. 

Coming up this week      

  • Light early part of the week with inflation reports but with a somewhat busy Thursday and Friday.
  • CPI on Tuesday.
  • PPI on Wednesday.
  • Jobless claims, retail sales and Philadelphia Fed manufacturing index on Thursday.
  • Housing starts, industrial production and Michigan consumer sentiment index on Friday.
  • EIA petroleum report and Baker-Hughes rig count also 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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