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Commoditized Wisdom: Metals & Markets Update (Week Ending December 15, 2023)

Posted:
Topic: Commodities
Publication Type: Market Commentaries
Commoditized Wisdom: Metals & Markets Update (Week Ending December 15, 2023)

Key points

  • Energy prices were mainly higher last week. WTI and Brent crude oil prices increased 1%, heating oil and gasoil prices rose 2% and gasoline prices climbed 4%. Natural gas prices fell 3%.
  • Grain prices were mixed. Wheat prices rose between 1% and 3%, corn prices lost 1% and soybean prices increased 1%. 
  • Spot gold prices increased 1%, spot silver prices rose 4% and platinum prices increased 3%. Palladium prices soared 24% higher.
  • Base metal prices were all higher. Aluminum and zinc prices gained 5%, copper and nickel prices increased 2% and led prices rose 3%.
  • The Bloomberg Commodity Index increased 1.2%, benefiting primarily from gains in the base and precious metals sectors.
  • Good inflows into gold and silver ETPs offset partially by broad commodity ETP outflows.

Commentary

Stock markets moved sharply higher last week with all 3 major indexes rising at least 2.5%.   The drive higher came from stark indications of cooling inflation within the framework of a still-resilient economy.   Tuesday’s CPI release set the stage for rallying stock markets, revealing lessening inflation pressure and boosting expectations of a Fed pivot early next year.   Wednesday’s FOMC announcement along with Jerome Powell’s subsequent press conference significantly added to those expectations as the Fed held rates steady while indicating the tightening process had reached its end to be followed by rate cuts throughout next year.   Reflecting that same sentiment, U.S. Treasury rates dropped over 30bps (all from lower 10-year real rates) and the U.S. dollar weakened nearly 1.5%. For the week, the S&P 500 Index rose 2.5% to 4,719.19, the Nasdaq Composite Index climbed 2.9% to 14,813.92, the Dow Jones Industrial Average gained 2.9% to close at 37,305.16, the 10-year U.S. Treasury rate fell 32bps to 3.91% and the U.S. dollar (as measured by the ICE U.S. Dollar index – DXY) weakened 1.4%.

Oil prices moved slightly higher last week, overcoming both supply and demand worries.  Prices moved almost 4% lower early last week, reacting to deflationary conditions in China and renewed uncertainty regarding future Fed monetary policy after a a slightly worse than expected CPI release.  Oil prices, however moved sharply higher Wednesday and Thursday following Wednesday’s dovish FOMC announcement and a much larger than expected drawdown in oil inventories.  A sharply weaker U.S. dollar and the IEA’s increase in 2024 oil demand (both on Thursday) significantly contributed to higher prices as well.  Prices fell slightly Friday after hawkish Fed comments, resulting in a stronger U.S. dollar. 

Gold prices performed similarly to oil prices, falling early in the week and then recouping all and more of those losses the remainder.   Future Fed policy doubts, in front of Wednesday’s FOMC announcement, pushed gold prices markedly lower Tuesday after a somewhat lackluster CPI release.   Wednesday’s dovish comments accompanying an as-expected FOMC rate decision, however, propelled prices sharply higher.    Hawkish Fed comments Friday strengthened the U.S. dollar and moved prices off their highs. Silver and platinum prices outperformed gold prices, moving in line with base metal prices.   Platinum prices soared 24% higher.  

Copper prices moved higher as well.   Lower initially on Chinese deflationary concerns and Fed policy uncertainty, prices rose later in the week, reacting positively to a dovish FOMC announcement and significantly weaker U.S. dollar.   Price gains, however, were capped by the absence of promised Chinese stimulus.

Lackluster week for grain prices overall.  A volatile weak for wheat prices with Chicago wheat prices moving 2% or more each day (but ending the week only slightly lower).   Prices were buffeted by favorable weather forecasts and higher production forecasts for Ukraine and Argentina (sharply higher for Argentina following new elected president’s policy announcement) on the downside and Russia’s export ban and lower French and Brazilian production on the upside.  Corn prices were pressured slightly lower by both Argentina’s currency devaluation and global production forecasts while soybean prices benefited from strong exports and South America weather concerns.

Coming Up This Week

  • PCE Price Index (Friday) of major interest this week. Home sales data, GDP, durable goods order and consumer confidence also of import.