The story of this week:
Gold Shines Despite The Dollar
In the past, when the dollar moved higher against other world currencies, the price of gold went the other way. A weak dollar led to higher prices for the yellow metal. Yogi Berra, the Hall of Fame New York Yankee and armchair philosopher, once said, “The future ain’t what it used to be.” When it comes to gold and the dollar, Yogi was right. Since February 2018, when the dollar index hit a low at 88.15, the relationship between gold and the dollar divorced.
As the weekly chart of the dollar index highlights, the greenback moved from 88.15 in early 2018 to a high of 99.815 this week or 13.2%. Gold has done even better.
The weekly chart of nearby COMEX gold futures shows that the yellow metal appreciated from a high of $1361.40 in February 2018 to $1644.60 this week or 20.8% over the same period. The bottom line is that gold is commenting on the value of all currencies that have the backing of the full faith and credit of governments that issue legal tender. Gold has risen to record highs in all foreign exchange instruments except for the dollar and Swiss franc.
Meanwhile, gold has appreciated substantially against the dollar and the franc. It is only a matter of time before the precious metal that is the oldest means of exchange in the world eclipses its all-time peak in the Swiss and US currencies. The next leg of the bull market in gold that commenced around the turn of this century began in June 2019 when the US Fed shifted from a hawkish to a dovish approach to monetary policy. The addiction to stimulus by global central banks is rocket fuel for the gold market. This week, Citigroup said they expect gold to move above the $2000 per ounce level. Gold’s ascent is telling us that currencies “ain’t what they used to be.” Keep an eye on silver, it could be a tightly coiled bullish spring.
Highlights in commodities:
- April gold exploded 3.93% higher and settled at $1648.80 per ounce
- March silver gains 4.49% as the precious metal settled at $18.53 per ounce on February 21
- Platinum posts a 0.75% gain on the week. April platinum was at a $672.70 per ounce discount to April gold futures, which widened to a new record high since last week
- March palladium exploded 12.46% for the week and settled at $2605.40 per ounce after trading to a new high of $2755.90 during the week
- March copper gained 0.33% to just under the $2.61 level
- April iron ore futures moved 4.58% higher on supply concerns in Brazil
- The BDI rebounded 14.01% since February 14 to the 480 level after months of declines over trade and Coronavirus
- April Rotterdam coal fell 7.44% since last week despite gains in crude oil and natural gas
- March lumber moved 2.40% higher since February 14 as the price was at the $460.10 per 1,000 board feet level
- March NYMEX crude oil rolled to April and gained 1.66% since February 14 and closed the week at $53.38 per barrel
- April Brent crude oil rose 2.06% since the previous report as Brent marginally outperformed NYMEX crude oil
- The premium for Brent over WTI in April closed Friday at the $5.04 level as the spread moved $0.12 higher since last week
- April gasoline rose 1.74% while April heating oil futures posted a 0.84% loss over the past week
- The gasoline crack spread in April was 0.79% higher while the April heating oil crack moved 8.63% lower since February 14
- Natural gas rose 3.70% on March futures closing the week at $1.9050 per MMBtu after failing at over the $2 level. The EIA reported a withdrawal of 151 bcf from storage on Thursday for the week ending on February 14
- April ethanol fell 2.89% on the week
- March soybeans fell 0.36% since last week
- March corn moved 0.20% lower on the week
- CBOT March wheat was 1.52% higher since last week. March KCBT wheat trading at an 82.50 cents discount under March CBOT wheat up 5.25 cents since February 14. The discount moved away from historical norm since last week
- May sugar rose 3.92% since February 14 and closed at over 15 cents per pound
- May coffee was 0.99% lower since last week
- May cocoa declined 1.49% since February 14
- May cotton rose 0.86% since last week as the fiber futures were at the 69.00 cents per pound level
- May FCOJ futures edged 0.64% lower since the previous report to just under $1.01 per pound level
- April live cattle fell 1.72% since last week
- March feeder cattle were 1.21% higher since February 14
- April lean hog futures rose 4.24% over the past week
- The March dollar index futures contract gained 0.19% on the week to just over the 99 level after making a new high at 99.815
- March Long-Bond futures trading at 165-01 up 2-18 for the week on the back of fears over Coronavirus
- The Dow Jones Industrial Average closes at 28,992 on Friday, February 21, down 406 points from February 14. The S&P 500 fell 1.25% since last week. The VIX was trading at around 17.08 on Friday up 3.40 on the week on the back of fears over Coronavirus
- Bitcoin was trading at $9.652.57 on Friday down $659.63 or 6.40% since February 14
- Ethereum was trading at $262.86 on Friday, down 6.93% since the last report after a 29% gain last week
Price Changes for the week:
DBC closes at $14.78 per share, up 13 cents since February 14
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.27 billion and trades an average daily volume of 1,301,350 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume fell over the past week and net assets remained the same as the price of the ETF posted a gain.
Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This document does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.