Hecht Commodity Report

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  • The stock market continues to recover
  • Gold edges lower, but silver and PGM prices rally
  • Crude oil continues to climb- Gasoline underperforms while heating oil outperforms the raw energy commodity- Natural gas recovers
  • Wheat moves higher, but corn and soybeans post losses- Soft commodities turn in a mixed performance
  • Bitcoin remains below the $10,000 level

The story of this week:

 

Silver Snaps Back

 

Active month July silver futures traded to a low of $11.68 per ounce on March 18, the lowest level since 2009. Technical support had been at the December 2015 low at $13.635 per ounce. Silver blew through that price as a hot knife goes through butter as risk-off selling on the back of the spread of Coronavirus hit markets like a sledgehammer. As silver tanked, the total number of open long and short positions in the COMEX futures market evaporated as those holding risk positions scrambled for an exit. Silver handed those holding long positions an expensive lesson about the potential volatility of the precious metal.

Source: CQG

The weekly chart shows that the price fell by around 38%. At the same time, the open interest metric moved from 244,705 to a low of 131,830 or over 46%. The metric stood at 155,485 contracts at the end of last week, signifying that many of those holding risk positions in the silver market in late February has not returned to the market.

Meanwhile, the price of silver has moved steadily higher since the March low. Last week, the silver traded above $18 per ounce for the first time since February and settled the week at $17.693 on the active month July futures contract on May 22.

The silver-gold ratio reached an all-time peak at over 124:1 in March when silver fell to its lowest price in eleven years.

Source: CQG

At the end of last week, the number of ounces of silver value in each ounce of gold value was back below the 100:1 level at just over 98:1.

The Fed told markets that it would continue to provide unprecedented levels of stimulus in Chairman Powell’s interview on CBS’s 60 Minutes on Sunday, May 17. The latest minutes from the FOMC meetings said the same. We learned in 2008 that liquidity, artificially low interest rates, and government stimulus programs that increase the money supply are bullish for the price of gold and silver. In 2008, gold fell to $681 and silver to $8.40 per ounce in the aftermath of the financial crisis. Monetary and fiscal policy initiatives that increased the fiat money supply took the two precious metals to $1920.70 and $49.82 per ounce in 2011. In 2020, the amount of stimulus is far higher than a dozen years ago. The US Treasury borrowed a record $530 billion from June to September 2008. In May, the Treasury borrowed $3 trillion, and more borrowing is on the horizon.

Silver’s move to an eleven-year low in March is looking like a false breakdown, and the recent price action is bullish for the precious metal. The levels to watch on the upside are the 2019 high at $19.54 and the 2016 peak of $21.095. The plunge in the price of silver was a reminder of how volatile silver prices can become, and that goes for the upside as well.

 

Highlights in commodities:

  • June gold fell 1.18% on the week, settling at $1735.50 per ounce
  • July silver up 3.65% for the week after soaring over 8% last week as the precious metal settled at $17.693 per ounce on May 22
  • July platinum gained 8.47% on the week. July platinum was at a $849.20 per ounce discount to June gold futures, which narrowed since last week
  • June palladium rose 6.42% and settled at $1,977.10 per ounce. Rhodium rose $1000 per ounce to a midpoint of $7,000 over the past week
  • July copper was 2.40% higher to the $2.3865 level since May 15
  • June iron ore futures moved 5.06% higher over the past week
  • The BDI rose 25.70% since May 15 to the 494 level
  • July Rotterdam coal declined 0.58% since last week
  • July lumber was 6.52% higher since May 15 and was at the $367.50 per 1,000 board feet level
  • July NYMEX crude oil gained 12.64% higher. The July contract closed the week at $33.25 per barrel
  • July Brent crude oil rose 7.58% since last week to just over $35 per barrel
  • The premium for Brent over WTI in July closed Friday at the $1.82 level as the spread moved $1.26 lower since last week as US output continues to decline
  • July gasoline rose 6.91% while July heating oil futures posted a 6.81% gain over the past week
  • The gasoline crack spread in July was 9.09% lower since last week. July heating oil cracks moved 2.37% higher since May 15 as gasoline underperformed and heating oil outperformed crude oil
  • Natural gas recovered 5.16% on June futures closing the week at $1.731 per MMBtu. The EIA reported an injection of 81 bcf into storage on Thursday for the week ending on May 15
  • July ethanol rose 4.67% on the week on strength in gasoline
  • July soybeans moved 0.63% lower since last week
  • July corn was down 0.39% on the week
  • CBOT July wheat rose 1.70% since last week to over the $5 per bushel level. July KCBT wheat trading at a 64.25 cents discount under July CBOT wheat as the discount moved away from the historical norm by 16.25 cents per bushel since last week
  • July sugar rose 5.30% since May 15 and closed at 10.93 cents per pound
  • July coffee posted a 3.04% loss since last week
  • July cocoa edged 0.21% lower since May 15
  • July cotton fell 1.10% since last week as the fiber futures were at the 57.61 cents per pound level
  • July FCOJ futures rose 2.63% since the previous report to $1.2680 per pound
  • June live cattle moved 0.72% higher since last week
  • August feeder cattle fell 1.74% since May 15
  • June lean hog futures were 1.56% higher over the past week
  • The June dollar index futures contract fell 0.61% on the week to 99.820
  • June Long-Bond futures were trading at 180-06 down 0-20 for the week
  • The Dow Jones Industrial Average closes at 24,465 on Friday, May 22 up 780 points from May 15. The S&P 500 rose 3.20% since last week. The VIX was trading at around 28.16 on Friday down 3.73 on the week as stocks moved higher
  • Bitcoin was trading at $9,179.38 on Friday down $160.78 or 1.72% since May 15
  • Ethereum was trading at $207.11 on Friday, up 6.23% since the last report

 

Price Changes for the week:

DBC closes at $11.55 per share, up 35 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 1,688,246 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.

Happy Memorial Day holiday! Stay healthy and safe…

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.   

                                                         

 

 

 

 

 

 

 

Andy Hecht

Author

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