June 7, 2019

  • Precious metals post gains with silver and gold leading the way
  • Copper remains near the lows on the back of trade issues
  • Crude oil runs into support at $50 per barrel, but natural gas sinks to the lowest level since 2016
  • WASDE on June 11 could add volatility to agricultural commodities prices
  • The dollar fails and digital currencies move lower on the week

The story of this week:

Is Gold Ready To Shine Again?

 Gold had a great week. On Friday, June 7, the yellow metal broke a bearish trading pattern that had been in place since February.

Source: CQG

As the weekly chart highlights, gold not only followed through on the upside over the past week, which was the third consecutive week of gains, it rose to a new high for 2019 at $1347.70 on Friday before pulling back to the $1240 level. Price momentum and relative strength metrics turned higher, and open interest at the 493,000-contract level does not threaten a wave of liquidation if risk-off returns to the market. Weekly historical volatility at 8.14% reflects gold’s position as a hybrid between a currency and a commodity.

On Friday, the employment report was bullish for the price of gold. The increase of 75,000 new jobs was far below analyst estimates which for a 180,000 rise in the metric. The path of least resistance of short-term US rates is now lower with most economists expecting two 25-basis point reductions in the Fed Funds rate and others looking for three before the end of 2019. Lower rates are likely to weigh on the dollar index which closed the week at the 96.50 level after trading to a new high at 98.26 in May. The paths of both interest rates and the dollar are supportive of gold. Additionally, fear and uncertainty as protectionist policies spread from China to Mexico make gold shine even more. The price action in gold mining stocks was also supportive of the yellow metal as both GDX and GDXJ posted more significant percentage gains than gold futures over recent trading sessions.

The levels to watch on the upside over the coming days and weeks is the double-top from 2018 at $1365.4o and the critical level of resistance at the July 2016 post-Brexit peak at $1377.50. While gold has failed over the past three years at under the $1380 level, it is possible that the stars are lining up and we will see technical levels on the upside melt away if gold is prepared to make a substantial move. I believe that the yellow metal currently has the potential to take out the 2016 and move through upside resistance levels like a hot knife through butter. Time will tell if this rally is different than others, but support from central banks on the downside and the current environment when it comes to both the financial and geopolitical landscapes has a potential to propel gold to higher highs.

Highlights in commodities:

  • Gold posts a 2.67% gain on the week and makes a new high for 2019
  • Silver moves 3.14% higher and closes just above $15 per ounce
  • Platinum edges 1.50% higher since last week. Platinum was at a $540 per ounce discount to August gold futures as the discount widens since May 31
  • Palladium rises 1.84% for the week
  • July copper fell 0.23% on trade issues as the price remains near the recent low
  • July iron ore futures fell 0.51% since last week
  • The BDI continues to move higher and gains 4.01% since May 31
  • Rotterdam coal falls just 0.09% as oil stabilizes
  • July lumber gains 3.74% but remains not far from the $300 level
  • July NYMEX crude oil recovers 0.92% since May 31. After trading down to a low of $50.60, oil closes the week at just below the $54 per barrel level. New record high in US output at 12.4 million barrels per day and the API and EIA report significant stockpile increases as of May 31
  • August Brent crude oil gains 2.63% since the previous report. August Brent was at $63.24 per barrel on Friday
  • The premium for Brent over WTI in August closes Friday at the $9.08 level up 78 cents since May 31 as OPEC is likely to leave production cuts in place and Iran continues to present supply concerns to the market
  • July gasoline moves 1.83% lower while July heating oil futures fall 0.85% over the past week as products underperform crude oil
  • The gasoline crack spread in July was 8.79% lower while the July heating oil crack fell 5.05% since May 31 on rising stockpiles
  • Natural gas fell 4.77% on July futures closing the week at $2.337 per MMBtu, the lowest price since 2016. The EIA reported an injection of 119 bcf into storage on Thursday for the week ending on May 31
  • July ethanol falls 1.72% on a pullback in corn
  • July soybeans decline 2.45% since last week
  • July corn retreats 2.63% after recent gains
  • CBOT July wheat posts a 0.30% gain since last week. July KCBT wheat trading at a 55.5 cents discount under CBOT wheat. The discount widened by 25.50 cents which is a warning sign for the price of the grain
  • July sugar gains 3.31% since May 31 and closes at 12.50 cents per pound
  • July coffee pulls back 3.49% since last week and closes at just over $1 per pound
  • July cocoa moves 3.25% higher and trades at a new peak at $2482 per ton before settling near the high at $2478.
  • July cotton moves 3.66% lower since last week to under 66 cents per pound
  • July FCOJ futures moved 2.12% lower, as the price closes at just over $1.06 per pound
  • August live cattle edges 0.22% higher since last week
  • August feeder cattle recover by 3.10% since May 31
  • August lean hog futures fall 3.78% over the past week
  • The June dollar index futures contract declines by 1.20% on the week as expectations for a rate cut in the US grow
  • June Long-Bond futures trading at 154-18 up 0.19 on the rising prospects for lower short-term rates from the Fed
  • The Dow Jones Industrial Average closes at 25,984 on Friday, June 7, up 1,169 points from May 31 as stocks stage a significant recovery. The S&P 500 rises by 4.41% since last week. The VIX falls 2.41 was trading at 16.30 on Friday.
  • Bitcoin was trading at $7,990.05 on Friday down $484.67 or 5.72% since May 31. Technical resistance at around $9125 in Bitcoin with support at $5000
  • Ethereum was trading at $249.74 on Friday, down 4.88% since the last report

 

Price Changes for the week:

DBC closes at $15.17 per share, up four cents per share since May 31

 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 854,995 shares. The fund summary for DBC states that it holds a diversified group of commodities futures but is weighted towards energy. The average daily volume increased in DBC over the past week, but net assets declined since last week.

Have a great weekend!

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