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Commodities and Precious Metals Update (Week ending January 24, 2020)

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

Key points 

 

Energy prices were all significantly lower last week. WTI and Brent crude oil prices fell 7.5% and 6.5%, respectively; gasoil and heating oil prices fell 5.7% and 6.8%, respectively and natural gas and gasoline prices lost 5.8% and 7.8%, respectively.

Grain prices, except for Chicago wheat prices, were all lower, too.  Kansas wheat prices decreased 1.7%, corn prices declined 0.5% and soybean prices dropped 3.0%.   Chicago wheat prices increased 0.5%.

Base metal prices were all lower as well. Nickel prices lost 7.0%, copper prices dropped 5.7%, zinc prices fell 3.8% and aluminum prices decreased 1.4%.

Gold and silver prices increased last week while platinum prices declined.   Gold prices rose 0.4%, silver prices gained 0.2% and platinum prices fell 0.3%.

The Bloomberg Commodity Index fell 3.10% with every sector except precious metals contributing to its decline.   The energy sector detracted the most (responsible for about 60% of the decline) followed by base metals (responsible for about 25% of the decline) and grains (responsible for about 11% of the decline).

Total assets in commodity ETPs increased $414.3m last week with precious metals ETPs garnering most of the inflows. Gold ($253.1m), silver ($101.3m), energy (ex-crude oil) ($124.2m) and precious metals (ex-gold and silver) ($29.1m) ETP inflows were slightly offset by crude oil (-$60.3m) and broad commodity (-$21.7m) ETP outflows.

Commentary

U.S. stock markets were mostly unchanged through Thursday last week despite building concerns surrounding the coronavirus and more negative news regarding Boeing and the 737 MAX.  10-year U.S Treasury rates, in contrast, fell 9bps through Thursday moving lower as investor concerns over the coronavirus increased.   On Friday, U.S. stock markets capitulated to coronavirus concerns after a second case was reported in the U.S. with the S&P 500 Index decreasing just under 1% and with the 10-year U.S Treasury rate falling another 5bps.  At week’s end the S&P 500 lost a little over 1% closing at 3295.45, the 10-year U.S Treasury rate dropped 14bps to 1.68% and the U.S. dollar strengthened 0.3% (as measured by the DXY Index).

Oil prices moved lower on concerns of oversupply coupled with concerns of lower demand as a result of growing anxiety of a widespread outbreak of the coronavirus.  WTI crude oil prices moved lower throughout the week, falling over 2% on Wednesday, Thursday and Friday, despite a much larger-than-expected increase in U.S. oil inventories and production halts/problems in Libya and Iraq.

Record Chinese production of copper and zinc and increasing LME inventories combined with escalating concerns of a widespread outbreak of the coronavirus pushed base metal prices lower last week.

Gold and silver prices, lower through Wednesday, increased on Thursday and Friday mainly on the back of coronavirus concerns.  Platinum prices moved lower in sympathy with base metal prices.

Soybean prices continued to suffer from oversupply concerns and disappointing export numbers to China.   Wheat prices fell with lessened concerns of supply shortages despite increased demand from Egypt, Algeria and Turkey.  

Coming up this week      

  • Busy data week with a 2-day FOMC meeting beginning Tuesday, Q4 2019 GDP preliminary estimate on Thursday and slew of other important numbers inbetween.
  • New home sales on Monday.
  • FOMC meeting begins, durable goods orders and Conference Board consumer confidence index on Tuesday.
  • Pending home sales, FOMC meeting announcement and J. Powell press conference on Wednesday.
  • Jobless claims and Q4 2019 GDP preliminary estimate on Thursday.
  • Employment cost index, PCE price index, consumer spending and Michigan consumer sentiment 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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