- Lots of volatility in crude oil and gold
- Natural gas under pressure, but a recovery to over the $2.20 on January 10- A new high for 2020!
- Grains strong after the release of the January WASDE report- Corn, beans, and wheat all closed Friday near the highs of the session
- Stocks manage gains despite the problems in the Middle East
- Bitcoin and digital currencies continue to recover
The story of this week:
Oil and Gold in the Spotlight
We witnessed lots of volatility in the oil and gold markets over the past week, which could be a harbinger for 2020. In the aftermath of the killing of the military commander of Iran’s revolutionary guard, the theocracy in Teheran retaliated with a missile strike on airbases in Iraq that house US troops. Fortunately, there were no casualties from the attack, which led to at least a temporary de-escalation of tensions that reached a boiling point as the missiles flew. Tragically, it appears that a mistake led to the downing of a Ukrainian commercial flight from Teheran to Ukraine in the hours that followed the attack, killing all passengers and crew aboard.
Crude rose to new highs in the immediate aftermath of the attack, and both the energy commodity and the precious metal declined by the end of the week as it appears no US military actions are on the horizon.
The chart highlights that nearby February crude oil futures on NYMEX rose to a peak of $65.65 on January 8 as the missiles flew into Iraq. On the same day, the price fell to a low of $59.15 and settled around the $59.98 level putting in a bearish reversal. The daily chart shows that crude oil had been taking the stairs higher since the early October low of $50.44 on February futures. The spike higher on January 8 led to an elevator ride to the downside on that day and decline to below $60 per barrel for the first time since mid-December.
The weekly chart shows that nearby NYMEX futures also put in a bearish reversal trading pattern. February futures settled at $59.04 on January 10. A settlement below $55.35 at the end of January would put in a bearish reversal on the monthly chart.
While gold avoided the bearish technical formations, its price action was similar to in the oil market over the past week.
The daily chart of nearby February COMEX gold futures illustrates that the yellow metal rose to a new high of $1613.30 on January 8. Last week was the first time gold probed above the $1600 level since April 2013. The futures moved lower following the de-escalation of tensions and settled at $1560.10 on January 10.
The quarterly chart shows that if the yellow metal can close above $1520 per ounce at the end of March, it would mark the sixth consecutive quarter of gains.
In last week’s summary report, I wrote, “Fasten your seatbelts, the event in the Middle East on January 2 is likely to lead to more incidents and lots of volatility in markets across all asset classes over the coming weeks and months.”
While things in the Middle East settled down by the end of the week, the US and Iran have been on the edge of war since the 1979 hostage crisis. While crude oil and gold may continue to decline over the coming week, I would look at any price weakness as a scale-down buying opportunity in the energy commodity and precious metal. I do not believe we have seen the high for 2020 in oil or gold on January 8.
Highlights in commodities:
- February gold rises 0.50% and settled at $1560.10 per ounce- The yellow metal makes a new high of $1613.30 on January 8
- March silver declines 0.25% on the week as the volatile precious metal settled at $18.105 per ounce after trading to a peak of $18.895 on January 8
- Platinum posts a 0.43% loss on the week. April platinum was at a $574.10 per ounce discount to February gold futures, which widened marginally since last week
- March palladium exploded 5.99% higher for the week and settled at $2072.90 per ounce after trading to a new record peak of over $2100
- March copper moved 0.95% higher as the red metal was just above the $2.81 level at the end of last week
- February iron ore futures moved 0.13% lower on the week
- The BDI plunged 20.90% since January 3 to the 772 level
- February Rotterdam coal rose 0.93% since last week
- March lumber moved 2.67% lower since January 3 as the price was just above the $416 per 1,000 board feet level
- February NYMEX crude oil moved 6.36% lower since January 3
- March Brent crude oil fell 5.42% since the previous report as Brent outperformed NYMEX crude oil on the back of tensions in the Middle East
- The premium for Brent over WTI in March closes Friday at the $5.96 level up 11 cents since last week
- February gasoline moved 5.10% lower while February heating oil futures fell 6.45% over the past week
- The gasoline crack spread in February was 2.01% higher while the February heating oil crack moved 5.34% lower since January 3
- Natural gas recovered 3.38% on February futures closing the week at $2.202 per MMBtu. The EIA reported a withdrawal of 44 bcf from storage on Thursday for the week ending on January 3
- February ethanol moved 0.74% lower on the week
- March soybeans rose 0.48% since last week
- March corn declined 0.19% on the week
- CBOT March wheat rose 1.80% since last week. March KCBT wheat trading at a 69.75 cents discount under March CBOT wheat down 9.75 cents since January 3. The discount moved towards the historical norm since last week
- March sugar rose 5.71% since January 3 to a new high at over 14 cents per pound
- March coffee continued to correct and fell 5.86% since last week
- March cocoa rose 2.78% since January 3
- March cotton moved 3.05% higher since last week as the fiber futures were over the 71 cents per pound level
- March FCOJ futures fell 2.31% since the previous report to just over 97 cents per pound level
- February live cattle rose 2.16% since last week
- March feeder cattle were 3.35% higher since January 3
- February lean hog futures fell 1.90% over the past week
- The March dollar index futures contract rose 0.58% on the week
- March Long-Bond futures trading at 157-23 down 0-19 for the week
- The Dow Jones Industrial Average closes at 28,824 on Friday, January 10, up 189 points from January 3. The S&P 500 rose 0.94% since last week. The VIX was trading at around 12.56 on Friday down 1.50 on the week as the situation in the Middle East calmed
- Bitcoin was trading at $8,079.23 on Friday up $741.09 or 10.10% since January 3
- Ethereum was trading at $142.98 on Friday, up 7.17% since the last report
Price Changes for the week:
DBC closes at $15.87 per share, down 29 cents since January 3 on weakness in oil prices
DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.43 billion and trades an average daily volume of 1,133,941 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average volume and net assets rose over the past week, while the price of the ETF was posted a loss.
Next week, I will be away on Friday, January 17. I will post the weekly summary by Sunday, January 19 before the markets open for the week.
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.