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Commodities and Precious Metals Update (Week ending June 26, 2020)

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

Key points

Energy prices were all lower higher last week.   WTI and Brent crude oil prices fell 3.2% and 2.9%, respectively and gasoil, gasoline and heating oil prices decreased 6.3%, 8.4% and 5.0%, respectively.  Natural gas prices dropped 10.8%.

Grain prices, too, were all lower.  Chicago and Kansas wheat prices fell 2.0% while corn and soybean prices decreased 5.3% and 2.2%, respectively.

Base metal prices were mixed with aluminum and copper prices increasing and zinc and nickel prices falling.  Aluminum and copper prices rose 0.5% and 1.9%, respectively. Nickel and zinc prices fell 2.2% and 0.7%, respectively.

Gold and silver prices increased 0.7% and  platinum prices fell 2.6%.

Lean hog prices fell 8.9%.

The Bloomberg Commodity Index ended lower last week, declining 2.09%.  The energy and grains sectors were primarily responsible for the decrease.  The precious metals sector was the only positive performing sector last week.

Total assets in commodity ETPs continued to rise, increasing  $1,525.8m last week. The lion’s share of the increase came from inflows into gold ($1,429.6m) ETPs with smaller inflows into  silver ($86.9m), agriculture ($54.4m) and precious metals (ex-gold and silver) ($37.9m) ETPs.  Crude oil (-$99.4m) ETP outflows were the only outflows last week.

Commentary

Better-than-expected economic reports and continued optimism regarding a V-shaped economic recovery pushed S&P 500 Index 1.1% higher through Tuesday and helped the Nasdaq Composite Index reach new record closing levels.  Reports of increasing Covid-19 cases, Trump administration threats of EU import tariffs and the IMF’s updated and significantly lower global economic growth forecast calling for a  contraction of nearly 5% caught the market’s attention on Wednesday pushing the S&P 500 Index down 2.6%.  Though a portion of those losses were reversed on Thursday as banks stocks rallied on news bank regulators would be relaxing certain capital restrictions, record daily increases in Covid-19 cases and reports that Florida and Texas would be rolling back some easing measures on Friday increased concerns regarding the strength and speed of the recovery of US and global economies pushing the S&P 500 Index down another 2.4%.  At week’s end the S&P 500 Index fell 2.9% to 3,009.05, the 10-year U.S. Treasury rate decreased 5bps to 0.65% and the U.S. dollar (as measured by the DXY Index) weakened slightly, falling  0.1%.

Oil prices somewhat mirrored U.S. equity markets reacting similarly to increased Covid-19 cases and increased concerns regarding U.S. trade frictions with both China and the EU.  Up nearly 1.5% through Tuesday, WTI oil prices fell just under 6% on Wednesday with reports of increasing Covid-19 cases in many states and on the back of the IMF’s significantly lower forecast of global economic growth.   Thursday’s stronger-than-expected durable goods report helped move oil prices almost 2% higher only to see some of those gains reversed on Friday on news Florida and Texas would be reinstituting some coronavirus related restrictions.

Aluminum and copper prices continued to benefit from falling inventory levels  – with copper production, in particular, affected by Covid-19 shutdowns – despite increasing Covid-19 cases in the U.S.  While zinc production also has been affected by Covid-19 related cutbacks, lackluster demand helped move prices lower last week.

Gold and silver prices rose on increased concerns in the jump of new Covid-19 cases reported and increased U.S. – EU trade frictions.  Friday’s closing gold price was a YTD high. 

Corn and soybean prices fell on favorable weather forecasts in the Midwest while wheat prices continued to suffer from better-than-expected harvests and global oversupply. 

Lean hog prices fell steeply Friday on renewed concerns meat packing plant closings may increase due to increasing Covid-19 cases and due to a USDA report showing hog herds were much larger than expected.

  • Coming up this week      

    • Busy holiday-shortened data week with a slew of manufacturing indexes, the release of FOMC minutes and the employment situation report highlighting the week.
    • Pending home sales on Monday.
    • Chicago PMI and consumer confidence on Tuesday.
    • ADP employment report, PMI and ISM manufacturing indexes, construction spending and FOMC minutes on Wednesday
    • Employment situation report, international trade, jobless claims, factory orders and Fed balance sheet on Thursday.
    • EIA petroleum report on Wednesday and Baker-Hughes rig count on Thursday.

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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