• Multiyear highs in gold as the Fed signals rate cuts are coming
  • Copper and industrial commodity prices move higher but wait for news on trade between the US and China
  • Crude oil rallies on Iranian hostilities- Natural gas falls below $2.20 per MMBtu
  • Agricultural commodity prices were stable to lower on the week
  • Stocks move higher, the dollar falls, and digital currencies continue to move to the upside

The story of this week:

 

The Fed Lights A Golden Match- OPEC, A Trade Summit, And Window Dressing On The Horizon- Oh My!

 

The only way to follow up a wild week in markets is the potential for an even wilder one on the horizon. Two big stories dominated the news cycle this week. The Fed did not cut interest rates at its June meeting, but it told markets that rate cuts are on the horizon which lifted stocks and commodity prices. The day before the Fed meeting, ECB President Mario Draghi made a highly dovish statement meaning that global rates are coming down. The Fed guidance weighed on the value of the US dollar against other world currencies. The Fed meeting lit a bullish fuse under the price of gold which rose to a multiyear high.

Source: CQG

As the monthly chart shows, gold rose and closed above its 2018 and 2016 highs to a high at $1406 per ounce. On the nearby August futures contract, the high was at $1415.40 before settling the week at $1400.10 per ounce, the level since 2013. Silver also rallied, but it continues to lag the yellow metal as the ratio was at the 91.5:1 level on Friday, a stone’s throw away from the all-time modern-day high at just over 93:1. The last time the ratio was this high, precious metals prices were at substantially lower levels. Copper also rallied to the $2.70 per pound level on the back of the Fed, but the red metal and many other industrial metal prices are waiting for news on trade from the G20 meeting next week.

The second leading news item of the week was the Iranian downing of a US drone near the Strait of Hormuz. President Trump chose not to retaliate as there was no loss of American lives. However, he told Iran they made a “big mistake” by increasing the hostilities in the region. The price of crude oil rallied off the lows after the incident.

Source: CQG

The daily chart of August NYMEX crude oil futures shows that the price rallied from close to the recent low at $50.79 to around $57.50 per barrel on Friday. At the same time, a refinery explosion on the US east coast in Philadelphia sent the price of gasoline and petrochemicals higher on Friday. While crude oil was rallying, natural gas went the other way and fell to a new low and the lowest level since 2016 when the price declined below the $2.20 per MMBtu level. After the sixth consecutive week of triple-digit inventory builds, natural gas closed the week at $2.186 per MMBtu on the active month July NYMEX futures contract.

The markets are now anxiously waiting for next week, which is chock full of events that can move markets. The OPEC meeting scheduled for June 25-26 was moved to July 1-2. The oil ministers likely want to wait on news from the G20 meeting before making any final decisions on production policy for the second half of 2019. However, the next move in the geopolitical chess game between the US and Iran is the most significant factor for the crude oil market. On June 28-29, Presidents Trump and Xi will meet at the G20 meeting in Osaka, Japan to discuss the status of the trade negotiations that stalled in May. The summit between the two leaders will be the most significant event, and markets could become volatile as any news comes out of the meeting.

The Fed’s pivot to a more accommodative stance on monetary policy supported the price of stocks. Aside from gold, Bitcoin took off on the upside and was around the $10,000 level on Friday. News that Facebook is working on a digital currency, Libra, provided additional support to the digital currency asset class. Next week will market the end of the second quarter and the first half of 2019. We will likely see window dressing in markets across all asset classes going into the quarter-end next Friday. Fasten your seatbelts; markets could be in for lots of volatility this summer.

Highlights in commodities:

  • Gold rises 4.14% on the week to the $1400 level, the highest price since 2013
  • Silver moves 3.29% higher and closes at the $15.29 per ounce level as the silver-gold ratio approaches the all-time peak
  • Platinum edges 0.78% higher since last week. Platinum was at a $589.10 per ounce discount to August gold futures which was at a new modern-day low
  • Palladium gains 2.61% for the week as the rally continues and palladium flirts with the $1500 per ounce level
  • July copper rose 2.85% but waits for next week’s trade summit
  • July iron ore futures rose 6.88% since last week on supply issues in Brazil
  • The BDI rises 12.43% since June 14 on the back of optimism over trade and lower US interest rates
  • Rotterdam coal falls 2.14%
  • July lumber was up 2.67% on lower interest rates and more demand for new homes
  • July NYMEX crude oil rolls to August and rallies 8.79% since June 14 as the US and Iran face off near the Strait of Hormuz. Inventory data from the API and EIA was supportive for the week ending on June 14.
  • August Brent crude oil rises 4.88% since the previous report. August Brent was at $65.14 per barrel on Friday
  • The premium for Brent over WTI in August closes Friday at the $7.71 level down $1.63 cents since June 14 despite the increase in tension in the Middle East
  • August gasoline moves 6.29% higher while August heating oil futures gain 4.67% over the past week on the back of an explosion at a refinery on the US East Coast
  • The gasoline crack spread in August was 0.21% lower while the August heating oil crack rose 4.67% since June 14 on concerns over the refinery explosion on
    Friday
  • Natural gas plunges 8.42% on July futures closing the week at $2.186 per MMBtu, the lowest price since 2016. The EIA reported an injection of 115 bcf into storage on Thursday for the week ending on June 14, the sixth consecutive week of triple-digit inventory builds
  • August ethanol falls 1.43% after the recent rally as corn moves lower
  • July soybeans edge 0.67% higher since last week
  • July corn declines 2.37% on the week
  • CBOT July wheat moves 2.32% lower since last week. July KCBT wheat trading at a 73.50 cents discount under CBOT wheat. The discount widened by 11.25 cents which continues to be a warning sign for the price of the grain
  • October sugar falls 3.41% since June 14 and closes at 12.48 cents per pound
  • September coffee rises 2.34% after the July-September roll
  • September cocoa moves 0.24% higher since last week
  • December cotton falls 0.32% after the contract roll
  • September FCOJ futures moved 2.04% lower, as the price closes at $1.0330 per pound
  • August live cattle moves 1.97% lower since last week
  • August feeder cattle fall by 1.37% since June 14
  • August lean hog futures fall 3.38% over the past week
  • The June dollar index futures contract declines by 1.36% on the week on the back of prospects for rate cuts by the US Fed
  • September Long-Bond futures trading at 154-23 up 0-08 on the rising prospects for lower short-term rates from the Fed
  • The Dow Jones Industrial Average closes at 26,719 on Friday, June 21, up 629 points from June 14 and adding to last week’s gains. The S&P 500 rises by 2.20% since last week. The VIX rises 0.07 was trading at around 15.40 on Friday despite gains in stocks on concerns over events in the Middle East.
  • Bitcoin was trading at $9,922.29 on Friday up $1,495.54 or 17.75% since June 14. Technical resistance is now at the $10,000 in Bitcoin as digital currencies receive a boost from the Facebook announcement about Libra
  • Ethereum was trading at $293.16 on Friday, up 13.82% since the last report

 

Price Changes for the week:

DBC closes at $15.70 per share, up 43 cents per share since June 14 on the Fed rate guidance

 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 912,548 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 as the prospects for lower interest rates continued to attract more capital to the commodities asset class. Next week will mark the end of the second quarter of 2019.

Have a great weekend!

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.