Author

Jeff Klearman

Jeff Klearman

Jeff Klearman is a Portfolio Manager for GraniteShares. He has more than 20 years of experience in the finance industry, including senior roles at Deutsche Bank and Rich Investment Solutions.

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Commentary,

Commodities and Precious Metals Update (Week ending July 26)

Key points

  • Except for natural gas, energy component futures prices were all higher last week.  WTI and Brent crude oil prices increased 0.8% and 1.5% respectively. Gasoil and gasoline prices increased 1.4% and 1.5%, respectively, and heating oil prices gained 0.9%.  Natural gas prices fell 3.5%
  • Grain prices were all lower last week.  Chicago and Kansas wheat prices decreased 1.3% and 1.8%, respectively, and soybean and corn prices fell 2.0% and 3.8%, respectively. 
  • Base metal prices, except for zinc prices, all fell last week.  Nickel prices decreased 4.2%, copper prices decreased 2.5%, and aluminum prices decreased 2.6%.  Zinc prices increased 0.6%.
  • Silver and platinum prices moved higher last week while gold prices fell.  Silver and platinum prices both rose 1.3% while gold prices fell 1.3%.
  • The S&P GSCI outperformed the Bloomberg Commodity Index last week with the S&P GSCI increasing 0.23% versus the Bloomberg Commodity Index decreasing 0.76%.  The S&P GSCI’s larger exposure to energy but smaller exposure to natural gas, grains and base metals was the primary reason for its underperformance.
  • Total assets in commodity ETPs decreased $157.0m last week. Broad commodity (-$397.8m), crude oil (-$38.3m) and agriculture (-$15.7m) ETP outflows were offset partially by gold ($128.0m) and silver ($174.4m) ETP inflows.

Commentary

Friday’s stronger-than-expected first estimate of Q2 GDP helped reduce concerns of a weaker U.S. economy brought about by a much-weaker-than-expected existing home sales number and a slew of other slightly-less-than-expected economic numbers released earlier in the week.   Strong Indications the ECB is ready and willing to reduce rates and restart its bond buying program helped increased expectations of stronger EU and global economic growth as did reports U.S. and China trade talks would resume this coming week.  At week’s end the U.S. dollar strengthened 0.9%, 10-year U.S. Treasury rates increased 2bp to 2.07% and the S&P 500 index increased 1.7%.

Up 1.8% through Tuesday, oil prices moved higher spurred by concerns over Iran’s seizure of a British oil tanker the previous week and expectations of a large drawdown in U.S. oil inventories.    Wednesday’s EIA inventory report showing a large drawdown (as expected) was dismissed as a one-time “Hurricane Barry” effect with concerns of reduced oil demand due to weaker global growth prevailing and pushing oil prices off their highs of the week.

Base metal prices moved lower last week as a result of a stronger U.S. dollar and continued concerns of weaker Chinese and global growth.  Aluminum prices down 1.4% through Thursday fell another 1.2% on Friday after the world’s largest alumina refinery, Norsk Hydro, lowered its demand growth forecasts for aluminum for a second time this year citing weaker global growth and U.S. – China trade frictions.  Nickel prices gave up some of their recent large gains after analysts warned prices had moved too high.

Gold prices moved lower as expectations of the number and size of U.S. rate decreases were slightly lowered on the back of a stronger-than-expected U.S. GDP report on Friday.   Silver and platinum prices increased supported by inflows into ETPs.

Grain prices moved lower last week mainly as a result of improved weather conditions and increased expectations of improved harvest yields. Corn prices also suffered from lower-than-expected export numbers and reduced demand for ethanol.  Soybean prices increased slightly on Friday after reports U.S.- China trade talks would resume this coming week.

Coming up this week      

  • Busy data week highlighted by the 2-day FOMC meeting beginning Tuesday and the employment situation report on Friday.
  • Personal income and outlays and consumer confidence on Tuesday.
  • Employment cost index and FOMC meeting announcement followed by Fed Chair Jerome Powell press conference on Wednesday.
  • Jobless claims, ISM and PMI manufacturing indexes on Thursday.
  • Employment situation report and international trade on Friday.
  • EIA petroleum report on Wednesday and Baker-Hughes rig count on Friday.