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Commodities and Precious Metals Update (Week Ending May 17)

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

Key points 

  • A good week for energy commodities with all components of the energy sector finishing higher last week. WTI and Brent crude oil prices increased 1.8% and 2.3% and gasoil, gasoline and heating oil prices increased 3.0%, 3.3% and 2.2%, respectively. Natural gas prices increased 0.3%.
  • A good weak for grains as well. Wheat and corn prices soared with wheat prices up between 8.6% and 9.5% and corn prices up 9%.  Soybean prices increased 1.5%.
  • A mixed week for base metal prices. Copper and zinc prices fell 1.3% and 0.6%, respectively, while aluminum and nickel prices rose 1.5% and 0.8%, respectively.
  • Precious metal prices were all lower last week. Gold prices decreased 0.5%, silver prices lost 2.7% and platinum prices dropped 3.9%.
  • Cotton prices continued to fall, losing 3.6%.
  • The S&P GSCI outperformed the Bloomberg Commodity Index last week. The S&P GSCI increased 2.1% while the Bloomberg Commodity Index increased 1.37%. The S&P GSCI’s larger exposure to energy and smaller exposure to precious metals was primarily responsible for its outperformance.
  • Total assets in commodity ETPs fell $27.8m last week. Broad commodity (-$43.2m) and silver (-$62.4m) ETP outflows were partially offset by gold ($52.6m) and crude oil ($29.5m) ETP inflows.

Commentary

The S&P 500 index, down 2.4% on Monday on renewed U.S-China trade tensions, regained most of its losses through Friday as off-again-on-again optimism of U.S.-China trade progress along with President Trump’s delay of EU and Japan auto tariffs moved the S&P 500 of its lows. The U.S. dollar, slightly lower on Monday, strengthened the rest of the week on the back of U.S.-China trade tensions and stronger-than-expected economic reports, including consumer sentiment data on Friday, while the 10-year U.S. Treasury rate decreased with continued expectations of the U.S. Federal Reserve Bank lowering rates before increasing them. At week’s end the S&P 500 was down 0.8%, the U.S. dollar strengthened 0.7% and the 10-year U.S. Treasury rate fell 7bps to 2.39%.

Oil prices, lower on Monday over demand concerns arising from U.S-China trade frictions, increased the rest of the week on lower global oil inventory forecasts by the EIA and OPEC, a continued decrease in active U.S. oil rigs and hopes of U.S. – China trade progress.  Wednesday’s EIA report showing a much-larger-than-expected build in U.S. oil inventories was partially offset by a much-larger-than-expected decline in gasoline inventories

Despite ending lower on the week, base metal prices rebounded from early-in-the-week lows – resulting from renewed U.S.-China trade frictions – on a stronger-than-expected U.S. housing starts report and President Trump’s decision to delay tariffs on EU and Japan auto imports. 

Gold prices moved lower as the U.S. dollar strengthened, inflation concerns remained muted and geopolitical tensions slightly eased last week. 

Wheat and corn prices soared last week as oversupply and U.S.-China trade concerns were replaced with concerns over unfavorable weather affecting plantings. Storms in the Midwest and Great Plains states delayed corn and wheat plantings calling into question forecasted harvest yields.  Soybean prices, while higher on the week, suffered over concerns of future Chinese imports.

Coming up this week      

  • Light data week highlighted by the release of FOMC minutes on Wednesday.
  • Existing homes sales on Tuesday.
  • FOMC minutes on Wednesday.
  • Jobless claims and new home sales on Thursday.
  • Durable goods orders 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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