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Commodities and Precious Metals Update (Week ending July 19)

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

Key points

  • Energy was the worst performing sector last week. WTI and Brent crude oil prices fell 7.5% and 7.0%, respectively, heating oil prices fell 4.5% and gasoil prices decreased 4.9%. Natural gas fell 8.5% and gasoline prices lost 6.8%.
  • The grain sector was the next worst performing sector. Chicago and Kansas wheat prices decreased 3.9% and 5.8%, respectively, and soybean and corn prices fell 5.2% and 1.3%, respectively. 
  • Base metal prices, except for zinc prices, were all higher. Nickel prices jumped 9.4%. Copper prices increased 2.2%, and aluminum prices increased 1.4%.  Zinc prices fell 0.6%.
  • Gold silver and platinum prices moved higher last week. Gold prices increased 2.3%, silver prices rose 6.3% and platinum prices gained 4.4%.  
  • The Bloomberg Commodity Index outperformed the S&P GSCI last week with the Bloomberg Commodity Index decreasing 1.99% versus the S&P GSCI Index decreasing 4.27%.  The S&P GSCI’s larger exposure to energy and smaller exposure to precious metals was the primary reason for its underperformance.
  • Total assets in commodity ETPs increased $937.2m last week. Gold ($1033.5m), silver ($219.0m) and crude oil ($68.2m) ETP inflows were offset partially by broad commodity (-$365.8m) ETP outflows.

Commentary

Despite much-better-than-expected retail sales numbers on Monday, concerns of weak growth in the EU and China helped pushed commodity and U.S. Stock markets lower last week.  Although Fed officials strongly indicated the U.S. Federal Reserve Bank will lower rates at least 25bps at its July FOMC meeting, President Trump’s comments Tuesday threatening increased tariffs on Chinese imports increased concerns over weak global and U.S. economic growth adding additional downward pressure on U.S. stock markets while supporting the U.S. dollar.  At week’s end the S&P 500 Index decreased 1.2%, the U.S. dollar increased 0.3% and the 10-year U.S. Treasury rate fell 7bps to 2.05%.

Despite increased tensions surrounding Iran and the Strait of Hormuz, crude oil prices moved lower on increased oversupply concerns and increased concerns of lower global growth.  Tuesday’s comments by Secretary of State Pompeo saying Iran was willing to talk with the U.S.  pushed prices 4% lower with prices never recovering after Iran’s seizure of a British oil tanker.

Base metal prices moved higher again last week supported by expectations the U.S. Federal Reserve bank would institute a more aggressive easing of monetary policy and on reports the U.S and China trade negotiators spoke on Friday. Nickel prices surged another 9.4% last week on continued supply deficit.

Gold prices rose on increased geopolitical tensions in the Mid-East as well as due to increased expectations of lower U.S. interest rates.  Silver and platinum prices moved higher with both base metal prices and gold prices.

Grain prices fell as Hurricane Barry left the Gulf eliminating export transport concerns and as weather conditions improved and crop ratings increased for the second week in a row.

Coming up this week      

  • Existing home sales on Tuesday.
  • New home sales on Wednesday.
  • Jobless claims, durable goods orders and international trade in goods on Thursday.
  • Q2 GDP first estimate 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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