Commodities & Precious Metals Weekly Report: Dec 2
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Key points
Energy prices, except for natural gas prices, were all higher. WTI and Brent crude oil prices rose 5% and 2%, respectively. Gasoline prices increased under ½ percent and heating oil prices were unchanged. Natural gas prices dropped 14%. - Grain prices were mainly lower. Wheat prices fell 4.5% and corn prices lost 4%. Soybean prices were slightly higher.
- Spot gold, silver and platinum prices were all higher - again. Spot gold prices rose 2.5%, spot silver prices jumped 8% and spot platinum prices gained 3.5%.
- Base metal prices were all higher. Aluminum prices rose 8%, copper prices 6% and zinc prices 5%. Nickel prices were up almost 14%.
- The Bloomberg Commodity Index decreased 0.3% with natural gas and grain losses offset by gains in oil and base and precious metals.
- $628 million commodity ETP outflows last week predominantly from gold and broad commodity outflows.
Commentary
Another positive week for stock indexes with Nasdaq Composite Index strongly outperforming the Dow Jones Industrial Average and the S&P 500 Index. Hawkish comments from Fed officials and unusual, widespread protests in China pressured stock prices lower Monday as investors waited for Friday’s job report, Thursday’s PCE price index release and Wednesday’s Jerome Powell speech. Basically unchanged Tuesday, all 3 major stock indexes moved sharply higher Wednesday following Fed Chair Powell’s comments at the Brookings Institution. Powell intimated December’s rate increase would likely be 50bps and, while the Fed would continue to act vigilantly against inflation, the pace of rate increases would likely slow. Thursday’s lower-than-expected core PCE price index release seemed to support investor expectations of a less aggressive Fed going forward and, at the same time, lessened downward stock price pressures resulting from Friday’s strong job report. The 10-year Treasury rate, reacting to growing expectations of more benign Fed monetary policy, fell 20bps. Interestingly, 10-year inflation expectations increased 11bps over the week slightly offsetting a 31bp decline in 10-year real rates. Similarly, the U.S. dollar significantly weakened. For the week, the S&P 500 Index increased 1.1% to 4,071.70, the Nasdaq Composite Index rose 2.1% to 11,461.50, the Dow Jones Industrial Average increased 0.2% to 34.428.95, the 10-year U.S. Treasury rate dropped 20bps to 3.49% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 1.5%.
Oil prices moved higher through Thursday last week supported by growing expectations of the relaxation of Chinese Covid-related curbs, sharply falling inventory levels, dovish Jerome Powell comments and a weaker U.S. dollar. Prices fell Monday on hawkish Fed comments and as protests in China over Covid curbs increased concerns of strong pushback by the Chinese government leading to a further reduction in Chinese demand. Those concerns were somewhat offset by reports OPEC+ was considering additional production cutbacks at its Dec 4 meeting. Both those sentiments reversed Tuesday following reports of Chinese government plans to relax restrictions and following statements by OPEC+ members a production cutback was unlikely. Fed Chairman Powell’s comments Wednesday in a Brookings Institution speech increased expectations of a less aggressive Fed going forward, supporting growth prospects, weakening the U.S. dollar and boosting oil prices. Friday’s strong job report reduced expectations of a more benign Fed, strengthening the U.S. dollar and pressuring oil prices lower. Natural gas prices dropped sharply last week, reacting to mild-weather forecasts, strong production and tepid LNG demand.
Precious metal prices rose last week, benefiting mainly from Wednesday’s seemingly dovish Jerome Powell comments. Monday’s hawkish comments from other Fed officials drove prices lower through Tuesday despite widespread Chinese protests (reported Monday). Fed Chair Powell’s Brookings Institution speech increased expectations of less aggressive Fed policy going forward, weakening the U.S. dollar, pushing Treasury rates lower and increasing the price of gold. Indications of relaxation of Chinese Covid restrictions also supported gold prices by raising physical gold demand expectations. Friday’s strong job report somewhat lessened expectations of an easing of Fed monetary policy, strengthening the U.S. dollar, pushing gold prices lower. Silver prices jumped almost 8%, affected by the same factors influencing the price of gold but with greater physical demand expectations due to its wider industrial use.
Base metal prices moved higher as well last week buoyed by Fed Chair Powell’s dovish comments Wednesday and on reports the Chinese would be loosening Covid restrictions following widespread protests. A weaker U.S. dollar also supported prices while Friday’s strong employment report appeared to support prices by adding to demand expectations. Nickel prices ended the week with double digit gains (up 14%).
Corn and wheat prices ended the week between 4% and 5% lower suffering from weak export demand and fund selling. Wheat prices also were affected by concerns regarding a record Russian wheat crop while corn (and soybean) prices were hurt by changing EPA biofuel requirements as well as talk of biofuel credits being given to EVs. Soybean prices were marginally higher supported by Chinese demand.
Coming up this week
Full week of data including GDP, International Trade in Goods and PMI and ISM Manufacturing Indexes and topped off by the Employment Report 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.
