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Commodities and Precious Metals Update (Week ending June 5, 2020)

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

Key points

Except for natural gas, all energy prices were significantly higher last week.  WTI and Brent crude oil prices (September futures) increased 10.6% and 11.1%, respectively.  Gasoil, Gasoline and heating oil prices (July futures prices) increased 15.7%, 12.5% and 11.0%, respectively.   Natural gas prices decreased 3.6%.

Grain prices were mixed. Chicago and Kansas wheat prices fell 1.1% and 2.0%, respectively while corn and soybean prices rose 1.7% and 3.2%, respectively.

Base metal prices all moved higher last week.  Copper and nickel prices both increased 5.3%.  Aluminum and zinc prices increased 2.6% and 3.0%, respectively.

Precious metal prices were all lower last week.  Gold prices fell 2.6%, silver prices dropped 5.5% and platinum prices decreased 0.2%.

The Bloomberg Commodity Index continued its move higher last week, increasing 1.83%.  The energy and base metals sectors performed the best with the energy sector increasing 1.4% and the base metals sector increasing 0.8%.  The precious metals sector was the worst performing, falling just under 1%.

Total assets in commodity ETPs rose again last week, increasing $735.7m. Gold ($403.2m), silver ($156.7), broad commodity ($97.7m), energy (ex-crude oil) ($31.1m) and precious metals (ex-gold and silver) ($28.4m) ETP inflows were primarily responsible for the increase. There were no significant ETP

Commentary

Overcoming concerns brought about by violent protests, fears of a second coronovirus wave and increasing U.S.-China tensions, U.S. stock markets marched higher last week, only pausing momentarily on Thursday, supported by growing optimism of a faster-than-expected economic recovery due to easing lockdown restrictions at home and abroad.   An unexpected 2.5 million  increase in non-farm payrolls (expectations were for a loss of about 8 million jobs) was the proverbial icing on the cake, pushing U.S. stock markets 2%-3% higher on Friday.     Throughout the week the 10-year U.S. Treasury rate climbed higher as well, moving with increasing expectations of stronger, faster U.S. economic growth while the U.S. dollar weakened significantly mainly as result of lessening coronavirus concerns decreasing demand for U.S. dollars.     At week’s end the S&P 500 Index increased 4.9% to 3,193.93, the 10-year U.S. Treasury rate rose 24bps to 0.90% and the U.S. dollar (as measured by the DXY Index) weakened 1.4%.

Moving higher on speculation OPEC+ would extend current production cutback levels through July and on increasing expectations of growing demand with easing lockdown restrictions throughout the world, WTI oil prices increased almost 5% through Thursday.  Friday’s surprising non-farm payroll increase of 2.5 million and OPEC+ announcing a Saturday (June 6) meeting to finalize the production cutback extension pushed WTI oil prices up another 5% on Friday. A weaker U.S. dollar also supported prices. For the week, WTI oil prices (September futures) increased 10.6%. 

Base metal prices moved higher on early estimates of increased cars sales in China, growing optimism regarding global economic growth, a surprising 2.5 million increase in U.S. non-farm payrolls and on a weaker U.S. dollar.   The ECB’s announcement that it would double its buyback program may have also supported base metal prices.

Despite a weaker U.S. dollar, gold prices moved lower on decreasing coronavirus concerns and growing expectations of a faster and stronger global economic recovery.    Silver prices retreated from their recent highs moving with gold prices but falling more steeply. 

Soybean prices increased with reports of Chinese buying while corn prices moved higher with oil prices and with expectations of increased ethanol demand.   Both soybean and corn price benefited from a weaker dollar.  Wheat prices, higher through Thursday, fell Friday with growing concerns regarding faster-than-expected plantings, favorable weather forecasts in the U.S and speculation Russia and Ukraine may lift export restrictions in the near future.

  • Coming up this week      

    • Relatively light data-week punctuated by the 2-day FOMC meeting beginning Tuesday and inflation numbers.
    • 2-day FOMC meeting begins Tuesday.
    • CPI, FOMC meeting announcement, Fed Chairman Powell’s press conference and the release of the Treasury budget Wednesday.
    • Jobless claims, PPI, 20-year bond announcement and Fed balance sheet on Thursday.
    • Consumer sentiment 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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