Commodities Weekly: Gold feels pressure from trade deal hopes

The so-called “Phase One” of the US-China trade deal appears to be progressing, with China boosting purchases of US agricultural products. The better outlook is keeping a lid on gold while boosting industrial metals, though oil is struggling to benefit.

 

Precious metals

GOLD has started the week negatively as an improvement in the trade outlook and increased risk appetite reduce the need for the safe haven asset. The lack of upward momentum is taking its toll on speculative long positions, which were trimmed to the least since the week of July 23, according to last week’s data snapshot from CFTC. Yesterday, Bloomberg reported that exchange-traded funds (ETFs) had increased gold holdings to 2,553 tons, a near seven-year high.

There were reports of 15 deaths at a Siberian gold mine after a dam collapsed, though this is not expected to impact supply a great deal.

Gold remains trapped in a downward-sloping channel which has been in place since September 4. The channel boundaries are at 1,440 and 1,506 today with the 55- and 100-day moving averages at 1,506 and 1,457 respectively providing narrower parameters.

Gold Daily Chart

Source: OANDA fxTrade

 

While SILVER has seen wild swings over the past four weeks, the Friday closing prices have kept within a very tight 17.5498 – 17.5593 range, suggesting neither bulls nor bears are gaining the upper hand. Bullish bets on silver were cut to the least in nine weeks in the week to October 15, according to data from CFTC. The gold/silver (Mint) ratio hit the lowest since September 26 yesterday after three days of losses.

 

PLATINUM prices have been mostly capped by the 55-day moving average, which is at 901.59 today, since end-September, with one exception. That breakout occurred on October 10 but failed to sustain the move, even for one day.

Speculative investors remain bullish on the commodity, increasing net long positions for a second consecutive week, according to the latest data from CFTC. Bloomberg reported yesterday that ETFs had increased platinum holdings for a sixth day, adding 2,555 troy ounces.

 

PALLADIUM is taking a breather after its latest run up to record highs last Thursday. Bloomberg has suggested that the shortage of palladium is evident in the cost of lease rates for the metal. One week lease rates have hit the highest since January, it reported citing data from Johnson Matthey, implying a lack of supply in the market. The report also saw the 2019 supply/demand shortfall at 809,000 ounces.

ANZ Bank said in a report last week that the supply deficit could run for the foreseeable future. The Bank noted that the rally over the past four years has seen shorter and shallower retracements each time.

Speculative investors turned net sellers of palladium for the first time in six weeks in the week to October 15, but actual long positions remain at the highest since the week of February 26, CFTC data show.

Palladium Monthly Chart

Source: OANDA fxTrade

 

Base metals

COPPER advanced for the second week in a row last week as progress appeared to be made in the US-China trade negotiations, with likely positive implications for global growth. A positive start to this week, which saw copper reach the highest level since September 16, appears to be running out of steam today and the metal is facing the first losses in four days. The improving growth outlook prompted speculative investors to turn net buyers of the metal for the first time in four weeks in the week to October 15, according to CFTC data.

The sub-categories in China’s September industrial production data saw copper output rising 11.6% from a year earlier to 838,000 tons. A strike in most ports in Chile gave copper a temporary boost. Chile is the world’s biggest copper producer, supplying 5.8 million tons in 2018, which was equal to about 28% of global output. Copper stocks at warehouses monitored by the London Metal Exchange (LME) fell Friday for the first time in four days.

 

Energy

NATURAL GAS has given back almost all of last week’s 6.2% gains this week as the downward trend continues. The commodity fell the most since January yesterday. Constant oversupply has prevented prices from rallying too far, with the latest weekly stockpiles data showing 104 billion cubic feet (bcf), up from 98 bcf the previous week and above the 5-year average of 81 bcf.

China’s natural gas output increased 10.6% y/y in September, according to the National Bureau of Statistics, but the nation still imported 71.2 million tons in the month, a 10% increase from a year earlier. Speculative investors remain bearish on the commodity, increasing net short positions to the highest since August 27, according to the latest CFTC data.

 

CRUDE OIL prices are stuck at low levels but are still managing to hold above the June and August lows of $50.54 and $50.47 respectively. Prices have fallen for the past three days, the longest stretch since the beginning of the month, and could be facing a second weekly loss in a row as investors weigh the better outlook for a trade deal against slowing global growth after China’s Q3 GDP growth numbers came in below forecast.

Speculative investors have not given up hope after increasing net long positions for the first time in five weeks in the week to October 15.

 

Agriculturals

SOYBEANS are marking time after reaching the highest since June 2018 last week. A commitment by China to buy more US agricultural products is supporting prices and speculative accounts have been boosting net long positions for the last five weeks, lifting them to the highest since June last year in the latest report from CFTC. Dryness during the South American seeding season has raised questions about yield prospects later.

 

SUGAR prices have been facing a lot of technical resistance points recently, with the 200-day moving average, now at 0.1207, holding back a rally on October 2 and the 100-week moving average at 0.1215 capping prices on a closing basis since June.

The US Department of Agriculture’s Foreign Advisory Service has cut its forecast for India’s sugar output for the next 12 months starting this month to 29.3 million tons from 34.3 million tons previously, a 15% reduction.

Sugar Daily Chart

Source: OANDA fxTrade

 

Recent weekly US CORN exports data was disappointing, reaching only 369,000 tons instead of the 525,000 forecast. Speculative investors were net buyers for a third week in the week to October 15, with the overall positioning turning long again for the first time in six weeks.

 

WHEAT prices have retreated from Fibonacci resistance at 5.285, the 78.6% retracement of the June-September decline, this week. Prices have been rising after the WASDE report two weeks ago scaled back the supply forecasts for this season. The shift saw speculative accounts turn net buyers for the first time in four weeks in the reporting week to October 15 and switching net positioning to long.