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Commodities and Precious Metals Update (Week Ending Apr. 19)

Key points

  • The grain sector was the worst performing sector last week.   Wheat prices fell between 3.5% and 4.3% while soybean prices were down 1.6%. Corn prices lost 0.6% on the week.
  • Most components of the energy sector managed to finish higher last week, with the exception of natural gas. WTI crude oil and gasoil prices were practically unchanged while heating oil prices eked out a small gain, increasing 0.1%. Brent crude oil and gasoline prices rose 0.5% and 0.7%. Natural gas prices dropped 6.0%.
  • Except for Aluminum, base metal prices were all lower last week.  Zinc prices fell the most, falling 5.3%, followed by nickel prices which fell 2.7%. Copper prices declined 0.9% and aluminum prices increased 0.2%.
  • Precious metal prices all ended lower last week with gold prices declining 1.4%, platinum prices down 1.0% and silver prices losing 0.1%.  
  • The S&P GSCI outperformed the Bloomberg Commodity Index last week. The S&P GSCI decreased 0.32% while the Bloomberg Commodity Index lost 1.17%%. The Bloomberg Commodity Index’s larger exposure to natural gas, grains and precious and base metals was primarily responsible for its underperformance.
  • Total assets in commodity ETPs fell $613.3m last week. Gold (-$494.7m), crude oil (-$103.3m) and broad commodity (-$69.1m) ETP outflows were partially offset by silver ($31.1m) and energy (ex-crude oil) ($25.8m) ETP inflows.

Commentary

A holiday-shortened trading week and mixed U.S. and weak German economic reports left U.S. stock markets unchanged and commodity markets lower despite continued U.S-China trade agreement optimism and stronger-than-expected Chinese GDP growth and industrial production numbers released on Tuesday.  Greater-than-expected U.S. consumer spending numbers and an unexpected narrowing in the U.S. trade deficit helped move the U.S. dollar higher last week while at the same time increasing forecasts of U.S. GDP growth this year. Weaker-than-expected U.S. industrial production and capacity utilization numbers helped keep U.S. 10-year Treasury rates almost unchanged. At week’s end the S&P 500 Index decreased 0.1%, 10-year U.S. Treasury rates were unchanged and the U.S dollar strengthened 0.5% (as measured by the DXY index).

Uncertainty surrounding waiver extensions on U.S. sanctions on Iran and concerns regarding weak European growth and OPEC+ stability, limited oil price gains last week. Oil prices were unchanged to slightly higher despite a larger-than-expected drawdown in U.S. oil inventories and a reduction in active U.S. oil rigs. Natural gas prices fell on increased production levels.

Recording their largest loss in 8 months, zinc prices fell on the back of a much-larger-than-expected increase in inventory levels. A stronger U.S. dollar helped move most other base metal prices lower last week.

Gold prices moved lower on continued optimism over a U.S.-China trade agreement, stronger-than-expected Chinese economic reports and reduced expectations the U.S. Federal Reserve Bank would be lowering interest rates anytime soon. In addition, $400 million of gold sales by Venezuela may also have pressured prices lower. Platinum and silver prices moved base metal prices.

Wheat prices reached a five-month low on greater-than-expected harvests in the U.S., Russia and Germany. Corn and soybean prices were also affected by concerns of increased harvests due to forecasts of favorable weather.

Coming up this week      

  • Existing home sales on Monday.
  • New home sales on Tuesday.
  • Jobless claims and durable goods orders on Thursday.
  • Q1 GDP advance estimate and consumer estimate on Friday.
  • EIA Petroleum Report on Wednesday and Baker-Hughes Rig Count on Friday.
Commentary, Research,

Correlations And The Art of A Terrible Tango

While diversification may be one of the most common refrains in finance, the irony is that it is home to widespread misconceptions among investors, both novice and seasoned alike.  Everyone intuitively understands the wisdom of “don’t place all your eggs in one basket” – such logic extends to everyday life – but investors often find themselves with far fewer “baskets” than they even realize.

What factors account for this discrepancy in diversification?

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