• Stocks push higher
  • Silver rallies to the $18.50 level, gold was steady, and PGMs decline
  • Crude oil higher, products lag, and natural gas falls as June rolls to July
  • Grains and cocoa move to the upside, soft commodities fall led by coffee on the downside
  • The dollar index falls below short-term support, Bitcoin and digital currencies post gains

 

The story of this week:  

China Back In The Spotlight

In 2018 and 2019, the fear and uncertainty of the escalating trade war between the US and China caused lots of volatility in markets across all asset classes. China is the second-most populous nation in the world and has the second-leading economy. In the world of commodities, China is the demand side of the fundamental equation. The rise of the Chinese economy had been a highly supportive factor for commodity prices.

When China’s economy slowed in late 2015 and early 2016, commodity prices responded by falling to multiyear lows. President Xi’s “new normal,” told the world to expect slower, but stable growth. Commodity prices moved higher as economic growth in the Asian nation stabilized. However, the trade war in 2018 and 2019 injected uncertainty as the US and China exchanged tariffs and retaliatory measures. On January 15, 2020, the two sides signed a “phase one” trade agreement in Washington that caused optimism to return to markets. At the same time, Coronavirus was sweeping through Wuhan Province. Over the weeks and months that followed, COVID-19 became the worst global pandemic since 1918. As of May 29, there were almost six million confirmed infections and over 362,000 deaths. The actual numbers are likely far higher. The virus originated in China, but the data shows that other parts of the world, including the US and Europe, have suffered far worse than the Chinese. While China restricted domestic travel at the onset of Coronavirus, they allowed citizens to travel abroad. The world is angry at China, and US President Trump addressed the situation in a brief speech on Friday, May 29. He terminated the US relationship with the World Health Organization, saying the WHO covered up Chinese malfeasances that could have prevented death and illness. The US President also accused China of violating its promises to the US and breaking its treaty obligations on autonomy for Hong Kong with recent laws that the Chinese have said are to protect its national security.

Markets did not react to President Trump’s latest move, which will increase tensions between Washington and Beijing. The US-China relationship is another factor that will complicate the global economy as it faces the continued challenges of the worldwide pandemic.

Last week, I highlighted the significant bounce in the price of silver, which closed at $17.693 per ounce on the July contract on May 22, after reaching a blow-off low at $11.68 in mid-March. This week, silver continued to add to its gains.

Source: CQG

The chart illustrates that silver moved to a high of $18.55 on May 29 and settled at $18.499 up over 4.5% for the week. I remain bullish on the prices of silver and gold and believe that buying on price dips is the optimal approach to precious metals. Applications for first-time unemployment applications rose to over 40 million since March, which is a reminder of the difficult economic situation in the US and worldwide. At the same time, violent protests in the US over a case of police brutality adds to societal divisions. The action in the stock market continues to ignore the current state of the US and the world. Crude oil posted its most significant monthly gain in history.

Highlights in commodities:

  • June gold rolled to August and declined by 0.11% on the week, settling at $1751.70 per ounce on the new active month August contract
  • July silver up 4.56% for the week after recent gains as the precious metal settled at $18.499 per ounce on May 29
  • July platinum fell 1.32% on the week. July platinum was at a $877.10 per ounce discount to
    August gold futures, which widened slightly since last week
  • September palladium fell 0.35% and settled at $1,972.90 per ounce. Rhodium rose $700 per ounce to a midpoint of $7,700 over the past week
  • July copper was 1.63% higher to the $2.4255 level since May 22
  • July iron ore futures moved 4.86% higher over the past week
  • The BDI fell 1.01% since May 22 to the 489 level
  • July Rotterdam coal moved 0.81% higher since last week
  • July lumber was 0.11% lower since May 22 and was at the $367.10 per 1,000 board feet level
  • July NYMEX crude oil gained 6.74%. The July contract closed the week at $35.49 per barrel
  • July Brent crude oil rolled to August and rose 6.20% since last week to just under $38 per barrel
  • The premium for Brent over WTI in August closed Friday at the $2.03 level as the spread has declined steadily over the past weeks
  • July gasoline rose 2.54% while July heating oil futures posted a 1.65% gain over the past week
  • The gasoline crack spread in July was 7.64% lower since last week. July heating oil crack moved 15.16% lower since May 22 as gasoline and heating oil underperformed crude oil
  • Natural gas fell 2.32% on the new active month July futures closing the week at $1.849 per MMBtu. The EIA reported an injection of 109 bcf into storage on Thursday for the week ending on May 22
  • July ethanol rose 0.18% on the week on strength in energy commodities
  • July soybeans moved 0.90% higher since last week
  • July corn was 2.44% higher on the week
  • CBOT July wheat rose 2.36% since last week to over the $5.20 per bushel level. July KCBT wheat trading at a 50.25 cents discount under July CBOT wheat as the discount towards the historical norm by 14.00 cents per bushel since last week
  • July sugar fell 0.18% since May 22 and closed at 10.91 cents per pound
  • July coffee posted a 7.05% loss since last week as the price slipped back below the $1 per pound level
  • July cocoa rose 2.51% since May 22
  • July cotton fell only 0.03% since last week as the fiber futures were at the 57.59 cents per pound level
  • July FCOJ futures fell 3.39% since the previous report to $1.2250 per pound
  • August live cattle moved 2.47% higher since last week
  • August feeder cattle rose 5.09% since May 22
  • August lean hog futures were 1.70% higher over the past week
  • The June dollar index futures contract fell 1.48% on the week to 98.341
  • September Long-Bond futures were trading at 178-07 down 0-10 for the week
  • The Dow Jones Industrial Average closes at 25,383 on Friday, May 29 up 918 points from May 22. The S&P 500 rose 3.01% since last week. The VIX was trading at around 27.51 on Friday down 0.65 on the week as stocks continued to move higher
  • Bitcoin was trading at $9,424.07 on Friday up $244.69 or 2.67% since May 22
  • Ethereum was trading at $219.74 on Friday, up 6.10% since the last report

 

Price Changes for the week:

 

DBC closes at $11.78 per share, up 23 cents since May 15

 Source: Barchart

DBC is the Invesco DB Commodity Tracking product which represents a diversified basket of commodities futures contracts, has net assets of $754.70 million, and trades an average daily volume of 1,656,889 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, net assets were steady over the past week, and the price of the ETF moved higher.

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.