- The commodities market recorded its first weekly increase in three weeks, aided by strong gains in the energy and grains sector.
- The results of precious metals weakened. The price of gold reached a new record, prompting some investors to realize profits. A significant factor was also the strong U.S. dollar and rising bond yields.
- Financial markets, including the commodity sector, are nervously anticipating the U.S. elections scheduled for November 5.
- In this commentary, we focus on gold, natural gas in the EU, palladium, copper and zinc, as well as cocoa and grains.
The commodities sector marked its first weekly gain in three weeks, supported by robust gains in the energy and grains segment. However, the values of precious metals slowed down. This happened after a record increase in gold prices, which led to profit realization in the face of a strong U.S. dollar and rising bond yields. The upcoming U.S. elections, which could introduce significant price fluctuations, was also a contributing factor. The industrial metals sector experienced falls as the market sought greater clarity and details about recent stimulus announcements from Beijing. Meanwhile, U.S. Treasury Secretary, Janet Yellen, criticized previous stimulus efforts, stating that they did not address key issues such as overcapacity and weak domestic demand.
Financial markets are increasingly concentrating on the upcoming U.S. elections scheduled for November 5. Gold and silver reached new records at the beginning of last week before another correction attempt, mainly due to rising yields of U.S. treasury bonds and a strengthening dollar. This unusual disruption of traditional market correlations suggests that traders are hedging against a possible “Red Sweep” scenario, in which Republicans take control of both the White House and Congress. Such a political turn could lead to the implementation of spending programs without financing sources, increasing the debt-to-GDP ratio and intensifying fears about long-term fiscal stability. Higher government debt could result in an oversupply of treasury bonds, raising borrowing costs throughout the economy. On the other hand, a lesser likelihood of a “Blue Sweep” suggests limited spending power under Kamala Harris’s administration, reducing concerns.
The Bloomberg Commodity Total Return Index, which tracks a basket of 24 major commodities almost equally split between energy, metals, and agricultural products, rose by 1.5% over the week. Since the beginning of the year, the index has gained 5.5%, with the main contributing sectors being precious metals, recording a 34% result, and agricultural commodities with a 21% result. Losses centered on grains (-16.5%) and energy (-4.7%), with the latter being mainly due to a 35% drop in natural gas prices.
Gold’s record run halted
The record surge in gold prices was halted by the realization of profits in response to rising bond yields and a strengthening U.S. dollar. Silver, which broke through a key resistance level last week, which is now support at USD 32.50, also encountered profit realization after reaching a new 12-year high. The precious metals market saw an unprecedented strong uptrend over the past year, with gold and silver posting total returns of 31% and 38% respectively, with only minor corrections visible during this bull market. The continuation of the trend largely depends on the results of the November 5 elections, taking into consideration what consequences they may have for global trade relations, the dollar’s value, government spending, and U.S. debt levels.
Despite the risk of correction after the elections based on the “buy the rumor, sell the fact” behavior, our long-term optimistic view on investment metals remains unchanged, supported by numerous factors that are unlikely to disappear anytime soon. These include fears of fiscal instability – not only in the U.S. – demand for safe assets, geopolitical tensions, and dedollarization driving strong demand from central banks and investors in China, who are seeking alternatives to low savings rates and falling property prices.
While silver must maintain support at USD 32.50 to avoid another wave of long position liquidation, gold, after its recent rise of USD 153, will be looking for support at USD 2,685, USD 2,666, and ultimately at the key level of USD 2,600.
While copper price consolidation occurred, more focus was drawn to zinc
High-grade copper continues to find support around USD 4.30 per pound, which is a relatively solid result in a week when interest in stimulation in China weakened, and the dollar strengthened due to rising interest in U.S. elections. Our long-term bullish forecast for copper remains unchanged – strong demand, especially in the context of the energy transformation, may lead to shortages as miners struggle to increase supply due to higher raw material costs, lower ore quality, climate change, and rising regulatory costs and government interventions. The uptrend from the 2020 low appears well established. A shift would require a weekly close below USD 4.00.
Instead of copper, zinc caught the limelight after data showed a significant increase in stocks at the London Metal Exchange (LME). The metal, mainly used for galvanizing, or coating steel or iron to protect against corrosion, momentarily rose to its highest level in 20 months following a series of recent disruptions. An additional impulse for this surge was LME data indicating that one entity controls over 50% of available stocks, sparking concerns about a possible “squeeze” – a situation the London market has had to deal with several times in recent years.
European natural gas prices hit a record high this year
Natural gas prices in Europe reached a new high this year. European consumers are paying 5.5 times more for gas than those in the United States. This is due to disruptions in Norway, Europe’s largest gas supplier, and various geopolitical risks, which have a greater impact on prices than weak industrial demand. The prospect of a mild start to November also limits the demand for heating. Warehouses in the region are 95.3% full, compared with 98.6% at the same point last year.
Approaching winter, traders fear competition for LNG from Asia, especially since the contract regulating gas flow through the pipeline from Russia to Ukraine, which is crucial for Central Europe, particularly Slovakia and Austria, expires on January 1. Under current circumstances, its extension in the same form is highly unlikely, which would further decrease Russia’s share in gas supplies to Europe from the current 20%, down from about 45% before Russia attacked Ukraine.
Palladium rises following proposed sanctions against Russia
In response to Russia’s war against Ukraine and sanctions from the West, palladium, a metal that has been under pressure in recent months, recorded a strong rise after the U.S. called on G7 allies to consider imposing sanctions on Russian palladium and titanium. Russia, alongside the Republic of South Africa, accounts for 70-80% of global palladium production, which means any disruptions in supplies from Russia can cause potential concerns. However, the situation is partly alleviated by the current weakening of the global internal combustion engine (ICE) industry due to economic slowdown and the shift to electric vehicles. Although the lasting positive impact on prices is doubtful, considering that significant actions could further burden the automotive sector, short-term support comes from speculators, reducing long-term short positions after a technical breakout of resistance, which has now become new support at USD 1,125 per ounce.
Grain exports increase, alleviating supply pressure from record U.S. harvests
A strong increase in U.S. grain exports supported the weekly corn and soybean prices, the two main crops that were under pressure due to the prospect of record harvests in the U.S. and uncertainty related to the November 5 election outcome. Corn recorded the largest increase after the USDA reported the sale of 4.2 million tons of U.S. corn last week, marking the highest weekly result since May 2021. This increase was driven by buyers utilizing low prices to replenish stocks ahead of elections that could lead to trade disruptions or policy changes. The Bloomberg Grains Subindex fell 16.5% year-to-date and is the worst-performing sector due to the oversupply of vital crops that, despite local weather issues, had two strong production years in a row.
Cocoa price decrease arrives too late to affect Christmas celebrations
Cocoa prices dropped to their lowest level since March – USD 6,750 – as the harvest season in Ivory Coast began, improving the tensed supply situation that earlier this year caused a temporary price surge above USD 12,000 per ton. So far, bean deliveries to ports surpass last year’s figures, indicating an improving supply forecast after a period of beneficial rainfall.
Additionally, a one-year delay in implementing the European Union deforestation regulation (EUDR) may alleviate supply concerns for EU importers who feared increased costs associated with verifying whether supplies are deforestation-free. The delay reduces the short-term risk of severing supplies from non-compliant regions.
However, the price drop likely arrived too late to lower prices for the high-demand season before Christmas and New Year’s Day. Although Easter chocolates may be cheaper next year, the chocolate consumed during this holiday season will probably be more expensive than last year’s. Despite the prospect of improved harvests, the shortage from the past two years will be difficult to replenish, if at all possible. This is evident in the futures market, which prices cocoa for December next year at around USD 5,200 per ton – 23% below the current price but still over twice above the long-term average.
Author: Ole Hansen, Head of Commodity Strategy at Saxo
Source: https://managerplus.pl/odbicie-na-rynku-surowcow-energia-i-zboza-na-fali-wzrostowej-zloto-pod-presja-realizacji-zyskow-71786
