Commodities and Precious Metals Update (Week Ending Mar. 1)
Posted:
Key points
- Except for natural gas, all components of the energy sector finished lower last week. WTI and Brent crude prices fell 2.7% and 3.2%, respectively, while gasoil, gasoline and heating oil prices decreased 1.7%, 2.1% and 1.6%. Natural gas prices increased 3.8%.
- Grain prices were all lower last week with wheat prices falling the most. Chicago and Kansas wheat prices fell 7.0% and 4.6%, respectively. Soybean prices declined 1.3% and corn prices lost 3.0%.
- The base metals sector was mixed. Zinc and nickel prices were up 2.4% and 1.5%, respectively. Copper prices were down 0.5% while aluminum prices were almost unchanged at up 0.2%.
- Gold and silver prices were lower last week, while platinum prices increased. Gold and silver prices finished the week down 2.5% (nearby gold futures contract price) and 4.7%, respectively. Platinum prices were up 4.0%.
- The S&P GSCI underperformed the Bloomberg Commodity Index last week. The S&P GSCI decreased 1.84% while the Bloomberg Commodity Index fell 1.36%. The Bloomberg Commodity Index’s smaller exposure to energy but larger exposure to natural gas was primarily responsible for its outperformance.
- Total assets in commodity ETPs decreased last week, falling $758.0m. Outflows from gold (-$710.2m) ETPs were the primary driver behind the decline. Broad commodity (-$17.3m), crude oil (-$14.0m) and energy (ex-crude oil) (-$29.5m) ETP outflows were partially offset by agriculture ($11.1m) and precious metals (ex-gold and silver) ($10.7m) ETP inflows.
Commentary
Vacillating expectations of a US-China trade agreement and a combination of Fed Chairman Jerome Powell’s congressional comments and mixed U.S. economic reports left U.S stock markets and the U.S dollar little changed on the week. While Fed Chairman Powell said the U.S. economy seemed resilient but highlighted uncertainties – U.S.–China trade agreement, Brexit and U.S debt limit – that may affect U.S growth. A stronger-than-expected 4th quarter GDP report and weaker-than-expected inflation report was counteracted by a much-lower-than expected ISM manufacturing index release. At week’s end the S&P 500 Index was up 0.4%, the U.S dollar weakened 0.05% and 10-year U.S. Treasury rates increased 10bp to 2.75%.
Despite a decline in active oil rigs in the U.S., a much-larger-than-expected drop in U.S. oil inventories and reduced OPEC output, crude oil prices were pressured lower over the week mainly as a result of President Trump’s tweet urging OPEC to reduce production cutbacks.
Despite a stronger U.S. dollar, nickel prices rose again last week benefiting from continued supply concerns. Zinc prices, too, rose on supply concerns with smelters limiting refined production. Copper prices pulled back from recent highs, falling slightly on the week, reportedly pausing for better global growth data.
Better-than-expected Chinese GDP and manufacturing data released on Friday and optimism over a U.S.-China trade deal helped push the nearby gold futures contract price below $1300. Silver prices moved with gold prices while platinum prices moved with base metal prices.
Wheat prices declined sharply this week, posting a record monthly decline, primarily due to lower-than-expected U.S. export numbers and continued good Russian export numbers. Compounding pressure on wheat prices were increasing global harvest forecasts. Corn prices fell with wheat prices while soybean prices.
Coming up this week
- Moderate data week ending with the employment report on Friday.
- New home sales and ISM non-manufacturing index on Tuesday.
- International trade on Wednesday.
- Jobless claims on Thursday.
- EIA Petroleum Report on Wednesday and Baker-Hughes Rig Count on Friday.
Who is Jeff Klearman in our research team? 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.
