Commodities Weekly: Gold rebounds as palladium hits record high

Another Fed rate cut last week helped precious metals, while comments on last week’s low level US-China trade talks from the US as “productive” and from China as “constructive” also helped sentiment in the agricultural sector, building hopes for a high-level meeting sooner rather than later. The energy sector is still recovering from the attacks on Saudi Arabian facilities.

 

Precious metals

GOLD rallied for the first week in four last week, boosted by lower US yields after the Fed rate cut and rising oil prices after the Saudi attack. China’s monthly purchases of gold slowed in August, while Russia’s gold holdings increased to 71.7 million troy ounces in the same month. They are worth approximately $109.5 billion, according to Bloomberg calculations.

Exchange-traded funds bought gold for a fifth consecutive day yesterday while speculative investors added to net long positions in the week to September 17, the latest data from CFTC show, just before prices climbed 2.2% to yesterday’s peak.

Gold Daily Chart

Source: OANDA fxTrade

SILVER jumped the most in almost three weeks yesterday on trade talk hopes and has extended those gains this morning to reach the highest since September 6. Silver’s relative out-performance also pushed the gold/silver (Mint) ratio down to the lowest since September 6.

Speculative accounts were not expecting this rally, having reduced net long positions for a second week in the week to September 17. Net longs are now at the lowest in four weeks.

After a four month period of consolidation following a majestic surge, PALLADIUM prices took off again last month and hit another record high early this morning. The metal looks set to rise for an eighth consecutive week after pausing between March and August. A combination of tight supply and a more positive outlook for global car demand once the US and China agree a trade deal pulled prices higher.

Speculative accounts added to net long positions for a second straight week in the week to September 17, and they are now the highest since the week of July 30.

PLATINUM touched the highest in 11 days early this morning but has since reversed and is now facing its first down-day in four days. Speculative investors appear not to be convinced that the metal has further upside as they turned net sellers in the week to September 17, according to the latest CFTC report, pulling net longs from a six-month high.

Base metals

COPPER slumped to the lowest in nearly three weeks yesterday before rebounding strongly to finish higher, snapping a five-day losing streak in the process. Optimism surrounding US-China trade talks drove the rebound amid hopes for an earlier-than-expected round of high-level talks. Speculative investors scaled back their net short positions for a second week, CFTC data to September 17 show.

Energy

CRUDE OIL prices remain elevated compared with the start of the month as the market prices in a risk premium after the attacks on Saudi Arabian production facilities two weekends ago. Tensions in the Gulf remain high, though as yet there has been no aggressive response from either Saudi Arabia or its allies.

Saudi Arabia was quick to assure the market that almost all of the facilities would be back to near full production by the end of this month, though those who have been tasked with making it happen have suggested it may take longer, according to reports from Dow Jones.

Prices posted the biggest weekly gain since June last week after the attacks cut Saudi production and this has caused ratings agency Moody’s to scale back its output forecast to 9.7 million barrels per day. As a result, it also lowered its forecast for Saudi Arabia’s 2019 growth to just 0.3% from 1.5% previously.

NATURAL GAS prices have been under pressure for five out of the past six days amid booming global output and more temperate weather across the US. Stockpiles continue to be rebuilt, with estimates suggesting that the data to September 20 will show an addition of 78 billion cubic feet on top of the 84 billion added the week before. The average increase in the 2014-2918 period was 74 billion bcf per week, according to Bloomberg calculations.

Speculative investors have been net buyers of the commodity for the past five weeks and net short positions, which have been in place since February 12, have been trimmed to the least since June 4.

Prices have failed to sustain a breach of the 200-day moving average, now at 2.626, on a closing basis that occurred on September 16 and prices have now retraced back below it.

Natural Gas Daily Chart

Source: OANDA fxTrade

Agriculturals

SOYBEANS rebounded from 1-1/2 week lows yesterday amid hopes for progress in the US-China trade talks sooner rather than later. We’ve been here before and if the high level talks in 1-2 weeks’ time don’t produce any concrete progress, then those gains could be quickly wiped out. Speculative investors are getting a bit wary, with net short positions reduce to the lowest since the week of July 23, according to the latest data snapshot from CFTC.

Speculative positioning in SUGAR is at its most bearish ever (as far back as 1983) as investors consider a global glut. However, prices snapped a run a seven weeks of lower closes last week and appears to be extending those gains into this week. Rumours of a temporary supply shortage for the 2019/20 season is forcing a short squeeze on positioning. Prices have risen for four days in a row and are moving toward the 55-day moving average at 0.1144.

Sugar Daily Chart

Source: OANDA fxTrade

CORN looks poised for a third consecutive weekly gain this week and is edging toward the 100-week moving average at 3.674. China’s corn imports in August were down almost 29% but the year-to-date total is about 33% higher than a year earlier at 3.73 million tons. Speculative investors were net sellers of the commodity for a ninth week, boosting net short positions to the most since the week of May 14, according to the latest data from CFTC as at September 17.

WHEAT is facing a fourth consecutive down day today amid uncertainty surrounding the US-China trade talks after a planned trip to US farms by the Chinese delegation last week were suddenly called off. No reason has officially been given to date. Net long positioning by speculative accounts has been boosted to the highest in three weeks, according to CFTC data.