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Commodities and Precious Metals Update (Week ending June 12, 2020)

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

Key points

Energy prices were all lower last week with WTI and Brent crude oil prices (September futures) falling the most.   WTI and Brent crude oil prices fell 8.1%.   Gasoil and Gasoline prices decreased 4.4% and 7.0%, respectively.  Heating oil prices dipped 0.4% and natural gas prices decreased 3.9%.

Grain prices were mostly lower last week. Chicago and Kansas wheat fell 2.4% and 2.6%, respectively and corn prices declined 1.7%.  Soybean prices were unchanged.

Except for copper prices, base metal prices were all lower last week.  Zinc, nickel and aluminum prices fell 3.7%, 2.6% and 0.6%, respectively.  Copper prices rose 2.0%.

Gold prices increased 3.2% while silver and platinum prices inched lower, falling 0.2% and 0.1%, respectively.

The Bloomberg Commodity Index decreased last week, falling 1.52%.  The energy sector was primarily responsible for the decline with the precious metals sector offsetting most of the losses in the remaining sectors.

Total assets in commodity ETPs rose yet again last week, increasing $1,054.0m. Gold ($824.3m), silver ($180.2m), energy (ex-crude oil) ($40.8m), broad commodity ($29.4m) and precious metals (ex-gold and silver) ($21.8m) ETP inflows were primarily responsible for the increase. Crude oil (-$64.8m) ETP outflows was the only ETP sector with outflows.

Commentary

Momentum from the previous Friday’s much-stronger-than-expected employment report pushed the S&P 500 Index 1.2% higher on Monday and into the black for the year and moved the Nasdaq Composite Index to a record high.    Anxiety surrounding the 2-Day FOMC meeting moved U.S. stock markets lower on Tuesday and Fed Chairman Powell’s comments on Wednesday – voicing deep uncertainty about the strength and timing of the recovery of  the U.S. economy – pushed the S&P 500 Index off its Monday’s highs to unchanged for the week.   U.S. stock markets plummeted Thursday on continued follow through from Powell’s comments as well as increased concerns of a coronavirus second wave only to see some of those losses recouped on Friday on no real news.   10-year Treasury rates steadily moved lower last week, fading with increased concerns of the timing and strength of economic recovery in the U.S.  At week’s end the S&P 500 Index fell 4.8% to 3,041.31, the 10-year U.S. Treasury rate decreased 20bps to 0.70% and the U.S. dollar (as measured by the DXY Index) strengthened 0.2%.

Dropping nearly 3.5% on Monday on news of increased shale oil and Libyan production (despite OPEC+ agreeing to extend current production cutbacks over the previous weekend), WTI crude oil prices recovered most of those losses through Wednesday mainly as a result of a weaker U.S. dollar brought about by Fed Chairman Powell’s economic outlook comments on Wednesday.  Increased concerns of a coronavirus second wave combined with the steep selloff in U.S. equities pushed WTI crude oil prices (September futures) nearly 8% lower from Wednesday’s closing levels over the remaining two days of the week.  For the week, WTI crude oil prices fell 8.1%.

Base metal prices, almost all higher through Wednesday, moved sharply lower on Thursday over second-wave coronavirus concerns and with steeply declining U.S. stock markets.   Copper prices, for example, up just over 4% through Wednesday on declining inventory levels in China, fell 2.6% on Thursday.  Zinc prices fell throughout the week, pressured by increasing inventory levels.

Supported by increased concerns over the timing and strength of U.S. and global economic recovery along with the continuation of unprecedented central bank monetary stimulus, gold prices increased over 3% last week.  Silver and platinum prices edged lower, moving with base metal prices.

Wheat prices struggled with forecasts of increased U.S. and global stocks and harvests.  Corn prices, hurt by falling oil prices, gained some support on the back of smaller-than-expected declines in ethanol demand while soybean prices continued to be supported by Chinese buying.

  • Coming up this week      

    • Another relatively light data-week with a couple regional activity reports, retail sales and housing starts.
    • Empire state manufacturing survey on Monday.
    • Retail sales, industrial production and Fed Chairman Powell speaks on Tuesday
    • Housing starts and Fed Chairman Powell speaks on Wednesday.
    • Jobless claims, Philadelphia Fed business outlook survey and Fed balance sheet on Thursday.
    • 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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