Commodity Exchange Week 2 December.


By Chinedu Okoye 



Summary:

• Commodities had an interesting second week of December. Crude Oil (both BRENT and WTI) experienced wild price swings but rebounded 1.71% (BRENT), and 0.74% (WTI) on Friday’s close as compared to the previous week’s close on Friday December 8th .

• All metals in view recorded gains on Fed Chairman Jerome Powell’s commentary on monetary policy, whilst Agricultural commodities in view all (but Soybean) recorded loses.

• Fundamentals line up nicely for precious metals as less hawkish commentary from the Federal Reserve, European Central Bank and the Bank of England strongly suggests these Central Bankers are done with the hiking cycle.

• Recession fears still lingers and could hamper certain commodity groups analyzed below. A weaker dollar is good for Commodities and commodity exporting countries.



Gold:

With fundamentals falling in line, gold having breached the $2000 mark to the $1980 level – mostly take profit effects – is back strongly above $2000 per ounce again.

With relatively more dovish statements from Fed Chair Jerome Powell, and the European Central Bank and Bank of England both holding benchmark rates as well, the yellow metal saw a quick rebound that could last deep into 2024 as recession and economic slowdown fears aren’t yet out of the picture.

Safe haven demand, hedging and lower Treasury yields all contribute to a positive outlook for Gold.

Commodity Week 1 Close  Week 2 Close  Week 2 %∆
Oil (BRENT) 75.65 76.95 1.71
Oil (WTI) 71.26 71.79 0.74
Silver 23.29 24.17 3.78
Copper  3.834 3.87 0.94
Nat Gas 2.552 2.47 -3.25
U.S. Wheat  632.25 629.5 -0.43
U S.  Corn 486.75 480.5 -1.38
U.S. Soybean 1306.25 1316.5 0.78
Cocoa (London) 3574 3555 -0.53
Cocoa (U.S.) 4290 4257 -0.77
Aluminum  2139 2243 4.86
Zinc 2389 2531 5.94
Lead 2024 2074 2.47
Gold 2004.49 2019.79 0.76
Palm Oil  3751.9 3692 -1.6



Silver:

XAG/USD pair also mirrored that of Gold within the week dipping to as low as $22.900 before a quick rebound to end the second week of December at $24.17, a 3.78% increase in the week.



Energy (Crude Oil and Gas):

Brent and WTI also saw wild swings on the week, dropping to below $73 and $69 per barrel respectively. The BRENT-WTI Spread increased in the week to $5.16, BRENT’s premium over WTI benchmark last week was $4.39.
Natural Gas continued it’s slide from the prior week, closing at 2.47 on Friday December 15th, a 3.25% decline from the prior week.





Other Metals (Zinc, Copper, Aluminum, Lead):

All metals listed in the table above recorded weekly gains with Aluminum gaining 4.86% in the week, Zinc; 5.84, Lead; 2.47% and Copper;0.84%.

Less hawkish sentiments might have affected these moves as these Commodities make up component goods for both production and construction. 

With inflation moderated but still above Central Banks targets, lower interest rates bode well for metals as production and construction demand are aided by lower borrowing costs.





Agriculture (Wheat, Corn, Soybean, Palm Oil):
Agricultural commodities as indicated in the table above closed lower than the previous Friday (December 8th). Wheat, Corn, Cocoa and Palm Oil all posted declines on the week erasing most or all of last weeks gains.

Wheat dropped 0.43%, Corn; -1.37%, palm oil; -1.6%, Cocoa fell 0.53% as Soybean gained 0.78%. Because U.S. Soybean is used as a benchmark for global pricing the rise could be attributed to fundamentals suggestive of a lower dollar amidst priced in interest rate cuts. Both factors could boost global demand.



Remarks and Final Summations:

Barring a recession, economists at Zero Analytics see possible increases in metals going into 2024. Companies exposed to this price increase either through direct operations (say a can food making company) or indirectly through investments (Investors with portfolios featuring such companies), could hedge against these risks by entering forward contracts or trading Futures.

We remain bullish on precious metals with a ‘sell the highs by the lows’ strategy as fundamentals are supportive of future price increases.
Food inflation and increasing cases of food insecurity creates a fundamental case for agricultural commodities which traded largely side ways on the month.


DISCLAIMER:
Zero Analytics offer Investment advice via a personalized business model tailored to meet specific needs of Institutional and Private Investors. 

Articles on its Blog site 'Zero Equilibrium' however are not to be considered as advice but research papers expressing opinions of Analysts for the purposes of engaging the online financial spaces and provide meaningful insights. 

We are long Gold, Silver, overweight on Treasuries and Neutral on Energy Commodities. 

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