• Silver and gold prices rise
  • The dollar moves higher
  • Crude oil and all energy prices post significant declines on the week
  • Grains are lower along with most agricultural commodities
  • Stocks falter at new highs and digital currencies fall as the US Congress demands a halt to Facebook’s Libra token

The story of this week:

 

Silver wakes up

 

Silver is one of the most speculative commodities that trade in the futures markets, but it also has a long history as a currency and an industrial metal. When gold broke to the upside in June following the Fed meeting, it traded above its 2016 peak at $1377.50 per ounce. The yellow metal broke out of its $331.30 trading range that had been in place since 2014 on the upside. Meanwhile, in July 2016, silver rose to a peak at $21.095 per ounce. At the high, the silver-gold ratio was at just over 65:1, or sixty-five ounces of silver value in each ounce of gold value. The average for the price relationship since the 1970s is around the 55:1 level, so silver was historically inexpensive compared to gold at the highs in July 2016. What was cheap in 2016, got a lot less expensive over the past three years, and recently the ratio rose to over the 93:1 level. In June, and until last week, silver was unable to move to a new high for 2019 much less challenge the 2016 peak.

During the week that ended on Friday, July 19, silver finally moved above the continuous contract high at $16.20 for 2019. The price of active month September COMEX futures hit a high at $16.625 while the continuous contract rose to $16.505 per ounce.

Source: CQG

As the weekly chart highlights, the price of silver traded to a level that ended the pattern of lower highs on the weekly chart dating back to 2016, which could be a significant event. However, profit-taking took silver lower during the final session of the week sending September futures to a settlement price of $16.195. Silver is a commodity that always likes to keep the market guessing. Meanwhile, the strength in silver sent gold to a higher high at $1454.40 on the August futures contract before settling for the week at $1426.70 per ounce.

Precious metals have been in bullish mode since the June Fed meeting. Silver could hold the key to the path of least resistance of the prices of the metals as it is a barometer of investor sentiment. If a bull market in metals is on the horizon for the rest of 2019 and into 2020, silver could have lots of room on the upside. A return to the historical norm in the silver-gold ratio at $1426.70 would put the price of silver at $25.94 per ounce, almost $9.75 above the settlement price on July 19.

On Friday, President Trump kept the pressure on the Fed when it comes to the upcoming FOMC meeting at the end of this month.

Source: Twitter

The President is not shy about lobbying for a 50-basis point cut in the Fed Funds rate at the July 31 meeting. However, the central bank will likely only move the short-term rate by 25 basis points at the meeting.

Falling interest rates have been supportive of the prices of precious metals.

Alan Greenspan once said that the best position for the Fed is when the market has no idea if they will increase or cut the Fed Funds rate going into the FOMC meeting. While Chairman Powell and the New York Fed President John Williams seemed to signal a rate cut, Fed Governor Eric Rosengren shed doubt after Friday’s close. In an interview on CNBC Rosengren said that the most recent data does not indicate a slowdown in the US economy and appeared to make a case for leaving rates unchanged at the July meeting. Rosengren’s position will likely infuriate the President. The Fed Governor’s comments were the last we will hear from the central bank as it now goes into its pre-FOMC meeting blackout period.

Over the past week, the price of crude oil broke through the $60 per barrel and the August NYMEX futures contract settled at $55.63 per barrel on Friday, which was the lowest weekly close since mid-June. The ongoing trade dispute between the US and China continues to stoke concerns about global economic growth, which has weighed on the price of oil. However, the tensions in the Middle East have been steadily increasing with the US downing of an Iranian drone on Thursday, and Iran’s seizure of a British oil tanker on Friday that could cause supply concerns. While crude oil has corrected, the situation in the Middle East will likely keep a bid under the price of the energy commodity. Meanwhile, natural gas fell below the $2.30 level after Hurricane Barry passed. Even a bullish injection report from the EIA could not prevent the price of natural gas from falling, which reveals the bearish tone of the market.

Grain prices rose on Friday on the weather reports and crop progress which trump the trade issues as we are in the heart of the 2019 growing season. The dollar index closed the week at just under the 97 level, and Bitcoin was trading at just under $10,500. The leader of the cryptocurrency asset class has declined from highs at over $14,000 in late June on the back of US concerns over Facebook’s Libra token. The government’s comments from both the executive and legislative branches are a sign that the US and other nations around the world are not likely to embrace digital currencies that are beyond their regulatory controls. Moreover, controlling the money supply is a critical function that governments are not likely to surrender any time soon.

 

Highlights in commodities:

 

  • Gold rises 1.03% on the week as the price remains above $1425 per ounce after putting in a higher high at $1454.40 on Friday
  • September silver explodes 6.29% higher and to a new high for 2019
  • Platinum rebounds 2.10% since last week. October platinum was at a $574.60 per ounce discount to August gold futures, which narrowed slightly since last week
  • Palladium declines 2.21% for the week and remains at just above the $1500 per ounce level
  • September copper rose 2.17% on the week on the back of prospects for lower interest rates
  • September iron ore futures move 2.85% higher as the primary ingredient in steel continues to make higher highs on shortages from Brazil
  • The BDI gains 17.29% since July 12 on new shipping regulations requiring higher-priced fuels
  • Rotterdam coal moves 2.83% higher since last week
  • September lumber rebounds 1.46% after recent losses
  • August NYMEX crude oil moves 7.61% lower since July 12 despite inventories declines. The slowing Chinese economy and comments by Secretary of State Pompeo weigh on the price of crude oil
  • September Brent crude oil falls 6.23% since the previous report. September Brent was at $62.66 per barrel on Friday as the Brent outperformed WTI crude oil
  • The premium for Brent over WTI in September closes Friday at the $6.90 level up 45 cents since July 12
  • August gasoline moves 6.9% lower while August heating oil futures fall 4.57% over the past week
  • The gasoline crack spread in August was 4.05% lower while the August heating oil crack moved 4.59% higher since July 12
  • Natural gas plunged 8.23% on August futures closing the week at $2.251 per MMBtu in the aftermath of Hurricane Barry. The EIA reported an injection of only 62 bcf into storage on Wednesday for the week ending on July 12, which provided no support for the price of natural gas
  • August ethanol moves 7.52% lower on the week as gasoline and corn prices declined
  • November soybeans fall 1.32% since last week
  • December corn drops 5.12% on the week
  • CBOT September wheat moves 3.92% lower since last week. September KCBT wheat trading at a 62.50 cents discount under CBOT wheat. The discount remains far from the historical norm with KCBT wheat trailing but the spread narrowed by 6.75 cents over the past week
  • October sugar falls 5.77% since July 12 and closes at 11.59 cents per pound as selling continues in the sweet commodity
  • September coffee rises by 0.61% on the week
  • September cocoa moves 1.44% lower since last week
  • December cotton rebounds by 0.62% after making a new low during the week
  • September FCOJ futures moved 0.68% higher, as the price closes at $1.0410 per pound
  • August live cattle moves 0.81% lower since last week
  • August feeder cattle fall 1.15% since July 12
  • August lean hog futures recover by 4.0% over the past week
  • The September dollar index futures contract rises 0.41% on the week despite the prospects for a Fed rate cut
  • September Long-Bond futures trading at 154-23 up 1-08 for the week as the bonds recover since July 12
  • The Dow Jones Industrial Average closes at 27,154 on Friday, July 19, down 178 points from July 12. The S&P 500 falls by 1.23% since last week. The VIX rises 2.06 was trading at around 14.45 on Friday
  • Bitcoin was trading at $10,431.63 on Friday down $1,236.33 or 10.6% since July 12, after Congress questions Facebook on its Libra token
  • Ethereum was trading at $219.40 on Friday, down 20.33% since the last report

 

Price Changes for the week:

DBC closes at $15.56 per share, down 50 cents per share since July 12 on weakness in energy prices

Source: Barchart

 

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $1.61 billion and trades an average daily volume of 876,914 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. Total average volume rose over the past week in a sign of increasing interest in the commodities asset class even though prices moved lower.

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.