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Commodities and Precious Metals Update (Week ending May 29, 2020)

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

Key points

Energy prices were mostly higher last week, with WTI crude oil prices again increasing the most.  WTI and Brent crude oil prices (September futures) increased 6.0% and 5.6%, respectively.  Gasoline and heating oil prices (July futures prices) increased 2.5% and 1.6%, respectively.   Gasoil prices declined 1.5% and natural gas prices fell 1.7%.

Grain prices were all higher last week. Chicago and Kansas wheat prices increased 2.3% and 5.8%, respectively. Corn prices rose 2.4% and soybean prices increased 0.9%.

Base metal prices all moved higher as well last week.  Aluminum and copper prices rose 2.7% and 1.6%, respectively and zinc and nickel prices increased 0.1% and 0.5%, respectively.

Gold and platinum prices fell 0.3% and 1.2%, respectively while silver prices rose 4.6%.

Coffee prices dropped 7.0%.

The Bloomberg Commodity Index increased again last week, gaining 1.27%.  The energy and grains sectors were the primary contributors.  The softs sector was the only sector with negative performance.

Total assets in commodity ETPs increased another $869.7m last week. Gold ($698.2m) and silver ($127.4m) ETP inflows were primarily responsible for the increase. There were no ETP outflows.

Commentary

Buoyed by increasing hopes regarding a coronavirus vaccine and increasing expectations of economic recovery spurred by easing lockdown restrictions, the S&P 500 Index increased 2.7% through Wednesday.  Concerns surrounding U.S.-China tensions, inflamed by China’s Hong Kong security restrictions,  pushed the S&P 500 Index off Wednesday’s high on Thursday only to see those losses recouped on Friday after President Trump’s announcement of measures against China were less harsh and encompassing than originally feared.  Markets all but ignored weak economic reports last week, including an almost 14% decline in consumer spending reported Friday, with investors focusing instead on increased hopes and expectations of economic recovery.  Jerome Powell, speaking Friday, said the fundamentals of the U.S. economy remain strong but with the coronavirus posing risks to growth and said the U.S. Federal Reserve Bank continues to use its tools to support the economy.   At week’s end the S&P 500 Index increased  3.0% to 3,044.31, the 10-year U.S. Treasury rate was unchanged  at 0.66% and the U.S. dollar (as measured by the DXY Index) weakened 1.6%.

Up over 3% Tuesday on rising expectations of increasing demand combined with reports of lower production, WTI crude oil prices dropped almost 4.5% Wednesday after the API report showed a much-greater-than expected increase in oil inventories and Russia voiced plans to increase production soon.  Thursday’s EIA report confirmed the API report’s increase in inventory levels but also revealed a much-larger-than-expected drop in inventories at the Cushing terminal and showed an unexpected increase in gasoline demand, pushing WTI crude oil prices up almost 2.5% from Wednesday’s lows. Friday’s weaker-than-expected measures against China announced by President Trump (as a result of China’s actions in Hong Kong) and a continued drop in active oil rigs helped push WTI crude oil prices up another 5%. 

Base metal prices moved higher on the back of growing expectations of increasing demand and as a result of a weaker U.S dollar. U.S-China trade tension concerns, increased by China’s actions in Hong Kong as well as the continued frictions surrounding the coronavirus, were somewhat lessened after measures announced by President Trump on Friday were not as harsh as feared.   

Falling almost 1.5% on Monday with increased optimism regarding economic recovery and growth, gold prices remained almost unchanged through Thursday.  Perhaps reacting to Fed Chairman Powell’s comments that the coronavirus continued to pose risks to U.S. economic growth and that the Fed would continue to use its tools to support the economy, gold prices rallied almost 1.5% to the end week almost unchanged.  Silver prices continued their move higher, strongly outperforming gold, supported by a weaker U.S. dollar and moving higher with base metal prices. 

Wheat prices moved higher on forecasts of strong demand combined with declining yields (bushels per acre) in the U.S, expectations of declining production in Russia and increased buying from China.   Corn prices benefited from increased ethanol demand and rising oil prices while soybean prices were supported by expectations of increased exports to China. 

Coming up this week      

  • Full data-week beginning with PMI and ISM manufacturing indexes on Monday and ending with the employment situation report Friday.
  • PMI and ISM manufacturing indexes and construction spending on Monday.
  • ADP employment report, PMI and ISM services indexes and factory orders on Wednesday.
  • International trade, jobless claims and productivity and costs on Thursday.
  • Employment situation report 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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