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Commodities and Precious Metals Update (Week ending May 22, 2020)

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

Key points

Energy prices were all higher last week, with WTI crude oil prices increasing the most.  WTI and Brent crude oil prices (September futures) increased 11.2 % and 8.6%, respectively.  Gasoil and heating oil prices (July futures prices) increased 6.0% and 6.8%%, respectively and gasoline prices rose 6.9%. Natural gas prices increased 2.6%.

Grain prices were mostly lower last week with the sole exception of Chicago wheat. Kansas wheat prices fell 1.7% while Chicago wheat prices moved oppositely, gaining 1.7%.   Corn prices fell 0.4% and soybean prices decreased 0.6%.

Base metal prices all moved higher.  Copper and nickel prices rose 2.4% and 1.2%, respectively and aluminum and nickel prices increased 3.1% and 3.3%, respectively.

Gold prices were slightly lower, falling 0.1% while silver and platinum prices increased 3.7% and 8.7%, respectively.

The Bloomberg Commodity Index reversed course and increased 1.75% last week.  The energy and base metals sectors also reversed course and were primarily responsible for the week’s gains in the index.

Total assets in commodity ETPs increased $952.3m last week. Gold ($450.3m), silver ($392.6m), broad commodity ($65.2m) and precious metals (ex-gold and silver) ($43.7m) ETP inflows were primarily responsible for the increase. There were no significant ETP outflows.

Commentary

Up over 3% Monday on positive news regarding Moderna’s development of a coronavirus vaccine, the S&P 500 Index zigzagged the rest of the week finishing very close to Monday’s level.  Initial optimism over Moderna’s progress was partially offset by doubts and questions over the value of the initial results on Tuesday, pushing the S&P 500 Index about 1% lower on the day.  Continued easing of restrictions throughout the U.S. with increasing expectations of stronger economic growth moved the S&P 500 Index higher by almost 2% on Wednesday only to see some of those gains reversed on Thursday with the weekly jobless claims report showing initial claims of 2.4 million.  The S&P 500 Index closed the week up 3.2% at 2,955.46, the 10-year U.S. Treasury rate rose 1bp to 0.66% and the U.S. dollar (as measured by the DXY Index) gave up last weeks gains, weakening 0.6%.

A surprise decline in US oil inventories (especially at the Cushing terminal), dropping U.S. oil production, a continued decline in active U.S. oil rigs along with expectations of greater demand due to easing lockdown restrictions globally and domestically all combined to push WTI and Brent crude oil prices significantly higher last week.  Wednesday’s EIA report showed U.S. oil inventory levels decreased by 5 million barrels while Friday’s Baker-Hughes Rig Report showed active U.S. rigs continued to decline, decreasing by 21 to 237.

Base metal prices moved higher last week supported by increased optimism of economic recovery following reports of Moderna’s coronavirus vaccine and easing restrictions throughout the world.  Weaker-than-expected economic reports from Europe, China’s abandonment of its GDP growth target and fears of escalating U.S.-China tensions moved most base metal prices off their highs on Friday.

Monday’s Moderna vaccine news and stronger than anticipated economic reports out of Europe as well as large-but-declining initial jobless claims on Thursday pushed gold prices slightly lower on the week.  Silver and platinum prices moved higher with base metal prices.

Higher or unchanged through Thursday on adverse weather concerns in the U.S. and Russia, wheat prices dropped sharply on Friday after better-than-expected weather forecasts in these same areas.  Kansas wheat prices diverged from Chicago wheat prices, reflecting bumper-crop forecasts for Kansas wheat.  Soybean prices suffered from expectations of a large crop this season and lack of Chinese buying.   Corn prices suffered from increased plantings offsetting higher oil and gasoline prices. Increased concerns surrounding U.S.-China tensions also negatively affected grain prices.

Coming up this week      

  • Another busy week with an panoply of data being released.  Highlights include Fed Chairman Jerome Powell speaking on Friday, consumer confidence and sentiment reports, regional manufacturing index releases and the second estimate for Q2 GDP.
  • Consumer confidence and new home sales on Tuesday.
  • Richmond Fed manufacturing index and Beige Book on Wednesday.
  • Durable goods orders, 2nd estimate for Q2 GDP and jobless claims on Thursday
  • International trade in goods, personal income and outlays, Chicago PMI, consumer sentiment and Fed Chairman Jerome Powell speaks on Friday.
  • EIA petroleum report on Thursday 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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