Commodities & Precious Metals Weekly Report: Mar 17
Posted:
Key points
Energy prices again were all lower last week. WTI and Brent crude oil fell between 11% and 13% and gasoline, heating oil and gasoil prices fell 7%. Natural gas prices (May futures contract) decreased 4%.- Grain prices were mixed. Wheat prices increased 5%, corn prices rose 3% and soybean prices fell 2%.
- Gold and silver prices moved sharply higher. Spot gold prices rose 7% and spot silver prices surged 10%. Platinum prices increased 2%.
- Base metal prices were mixed. Aluminum and zinc prices decreased 2% and copper prices fell 3%. Lead prices increased 1% and nickel prices rose 3%.
- The Bloomberg Commodity Index decreased 1.8%. Energy sector losses (down 2.7%) were offset by gains in the precious metals sector.
- $260 million net inflows into commodity ETPs last week. $1 billion inflows into gold ETPs were partially offset by $320 million broad commodity and $400 million silver ETP outflows.
Commentary
Banking system concerns, inflation and this week’s FOMC meeting dominated the market's attention last week. FDIC, Treasury and Fed support provided to Silicon Valley Bank fleetingly shored up banking concern sentiment but the precarious position of First Republic Bank (as well as of Swiss bank Credit Suisse) despite support received by the Fed and a consortium of large banks sharply weakened it. Expectations of the Fed not raising rates this week increased from 0% to (at one point) 33% in the face of banking system concerns and despite a CPI release (Tuesday) showing core inflation increased MoM. Indeed, the Fed’s balance sheet, which the Fed has been strenuously working to reduce, increased $300 billion last week as the Fed acted to provide needed liquidity to the banking system. The 10-year Treasury rate dropped 26bps, moved not only by a flight to quality but also on expectations of less aggressive Fed monetary policy. Reflecting those expectations as well, the Nasdaq Composite Index strongly outperformed the other 2 major indexes, gaining over 4% compared to an almost unchanged Dow Jones Industrial Average and an up 1% S&P 500 Index. The 4 largest tech stocks – Alphabet, Amazon, Apple and Microsoft - had their best week in a long time (Microsoft increased the most, jumping 12% higher). For the week, the S&P 500 Index increased 1.4% to 3,916.64, the Nasdaq Composite Index rose 4.4% to 11,630.51, the Dow Jones Industrial Average decreased 0.2% to 31,858.89, the 10-year U.S. Treasury rate fell 26bp to 3.44% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 0.7%.
Oil prices moved sharply lower last week, falling on heightened recession concerns resulting from sharply elevated banking-system concerns. WTI crude oil prices decreased every day but Thursday last week, falling more than 2% on each of those days. Prices managed to move 1% higher Thursday following reports OPEC and Russia met to discuss stabilizing oil prices. Wednesday’s EIA report showing oil inventories climbed more than expected also pressured prices lower, adding oversupply concerns to recession-related demand concerns. Expectations of less aggressive Fed monetary policy seemingly had little effect on oil prices. Gasoline and heating oil prices also moved lower, but not as sharply, decreasing by about half the amount as oil prices.
Gold and silver prices moved sharply higher last week powered by greatly increased banking-system concerns (safe-haven demand) and growing expectations the Fed would refrain from raising rates at this week’s FOMC meeting. Spot gold prices rose nearly 7% last week. Spot silver prices moved more markedly, rising almost 11% on the week.
Base metal prices were mainly lower last week, affected by demand-destruction concerns resulting from increased banking-system concerns and despite a weaker U.S. dollar. Less-than-expected Chinese demand pressured prices lower as well with copper prices, down almost 3.5% on the week, falling the most. Nickel prices managed to increase last week perhaps reacting to reports “stones” had been stored in LME warehouses instead of nickel.
Corn prices moved higher last week benefiting from a downgrade in Argentina’s crop production estimates and from announced sales to China. Wheat prices also moved higher bolstered by extension uncertainty surrounding the soon-to-expire Black Sea export agreement and drought conditions for a majority of the U.S. winter crop. Soybean prices, however, moved lower, pressured marginally by lower crude oil prices but mainly by reports of increased Chinese African swine fever cases pushing soymeal prices lower.
Coming up this week
FOMC Meeting and Announcement capture this week’s headlines. New and existing home sales also on the radar.
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.
