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Research

Commodities and Precious Metals Update (Week ending July 2, 2020)

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

Key points

Energy prices were all higher last week with natural gas prices increasing the most.   WTI and Brent crude oil prices rose 5.4%, and gasoil, gasoline and heating oil prices increased 5.7%, 7.9% and 5.9%, respectively.  Natural gas prices increased 11.2%.

Grain prices were all higher as well.  Chicago and Kansas wheat prices increased 3.4% and 1.5%, respectively and corn and soybean prices gained 7.6% and 4.1%, respectively.

Base metal prices, too, were all higher last week.  Aluminum and copper prices rose 1.1% and 2.6%, respectively and zinc and nickel prices increased 0.3% and 2.1%, respectively.

Gold and platinum prices increased 1.7% and silver prices rose 0.9%

The Bloomberg Commodity Index moved higher last week, increasing 3.82%.  Every single futures contract price held by the index increased last week.  The energy sector was responsible for almost 50% of the index’s increase and the grains sector was responsible for about 33% of the index’s increase.

Total assets in commodity ETPs rose again, adding  $1,544.4m last week. Once again, most of the increase came from inflows into gold ($1,407.8m) ETPs with additional inflows into  silver ($186.4m) and broad commodity ($42.8m) ETPs.  Crude oil (-$78.0m) ETP outflows were the only significant outflows last week.

Commentary

Monday’s and Tuesday’s much-stronger-than-expected pending home sales and consumer confidence numbers combined with Boeing’s successful 737 Max test flight propelled the S&P 500 and the Nasdaq Composite Index to their best quartly performance  since 1998 and 2001, respectively.   Better-than-expected PMI and ISM manufacturing index releases on Wednesday and a much-stronger than-expected payroll report on Thursday pushed U.S. stock markets higher the remainder of the holiday-shortened week, though gains were muted because of growing concerns surrounding increasing COVID-19 cases.  At week’s end the S&P 500 Index increased 4.0% to 3,130.01, the Nasdaq Composite Index increased 4.6% to 10,207.63, the 10-year U.S. Treasury rate increased 2bps to 0.67% and the U.S. dollar (as measured by the DXY Index) weakened 0.4%.

Strong U.S and China economic reports, a much-larger-than-expected drop in U.S. oil inventories and growing demand together with still slowing production all combined to help move WTI oil prices almost 6% higher last week despite growing concerns surrounding increasing COVID-19 cases.   

Strong economic reports both in the U.S. and China and low inventory levels helped move base metal prices higher last week despite increasing COVID-19 cases in the U.S. and elsewhere.     Demand concerns as a result of increasing COVID-19 cases were partially offset by production concerns due to possible mine shutdowns.

Despite strong U.S. economic reports last week, including a much-stronger-than-expected employment situation report on Thursday, gold prices moved higher supported by  growing concerns regarding a coronavirus second wave and Fed Chairman Jerome Powell’s comments  before Congress on Tuesday that additional federal fiscal stimulus could be necessary to maintain consumer confidence given the ongoing state of the pandemic.  Silver and platinum prices moved higher with gold and base metal prices.

Corn and soybean prices – up approximately 4% and 8%, respectively, on the week – moved higher on bullish sentiment spurred by Tuesday’s lower-than-expected USDA acreage report.  All prices moved off their Wednesday’s highs on Thursday perhaps reflecting increased uncertainty due to the growing number of new COVID-19 cases.

Coming up this week      

    • Very light data week with PMI and ISM services indexes and PPI report of note.
    • Motor vehicle sales, PMI services index and ISM non-manufacturing index on Monday.
    • Jobless claims and the Fed balance sheet on Thursday.
    • PPI and Treasury budget 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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