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- From precious metals to soybeans to copper, prices of all commodities are rising
- The outlook for some commodities is not entirely optimistic as economic concerns still exist
- Crude oil is on track for a noticeable quarterly decline
- Gold continues to push towards new record highs, while fiat currencies are in constant decline
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A significant drop in oil prices marked the week behind us. And when futures prices for oil fall, it has a negative effect on many other commodities. It is no surprise, therefore, that most commodities in the energy complex ended the week in the red. The only exception is gas. Futures prices for metals and agricultural commodities have risen to last week’s levels.
Regarding some indicators important for commodities and markets, at the beginning of the new week, the DXY index is slightly above 100 points, the EUR/USD ratio is 1.12, bitcoin is slightly above 64 thousand dollars, the GSCI commodity index is above 530 points, and the BCI index is at 100 points.
We have another significant week ahead for commodity markets. We are expecting a speech from FED Chairman Powell, the USDA report on quarterly grain and oilseed stocks, the Vance-Walz debate, the employment report, and new jobs in the US… basically a mix of macroeconomic data and fundamental reports. The market will also keep an eye on wetter long-term weather forecasts for Brazil, harvest results in the US, escalating tensions in the Middle East, and seasonal changes.
After the FED lowered interest rates, only China’s reaction was awaited, which had been eagerly anticipated for months. They came out with their economic stimulus measures worth 147 billion dollars, and this is likely just the beginning as the world expects a continuation of the interest rate reduction policy in the West, which China will certainly accompany with its measures. However, what if economic indicators continue to be unsatisfactory? China’s goal is to reach five percent GDP growth again, but more stimulus is likely needed to achieve this, although without weakening the yuan!
Christine Lagarde, President of the ECB, warns that the global economy is facing a situation similar to that of the 1920s, which led to the depression of 1929. The debt bubble could burst at any moment. Currencies around the world are now rapidly devaluing against gold and decentralized main values. A hundred years ago, from 1915 to 1945, with the end of the British Empire, we saw the so-called “Spanish” pandemic, two world wars, and a financial crisis. In the last four years, three of these four situations have already occurred; the only thing missing is a financial crisis.
Hedge funds are making large bets on commodities at the fastest pace in seven years. The combination of Chinese economic stimulus and interest rate cuts by the FED has resulted in a significant change in sentiment towards agricultural markets and metal markets. Fund managers have increased their net long position in a basket of 20 commodity markets by as much as 332,575 contracts according to data from the US Commodity Futures Trading Commission.
This is the largest increase in bullish positions since July 2017. From precious metals to soybeans to copper, prices of all commodities are rising, which is why the Bloomberg Commodity Index (BCI) has risen to its highest level since July. However, the outlook for some commodities is not entirely optimistic as economic concerns still exist. Crude oil is on track for a noticeable quarterly decline.
Gold continues to push towards new record highs (and is expected to break the $2,700/oz level), while fiat currencies are in constant decline. Looking at gold, technical analysis suggests that the price could reach at least $3,000/oz, perhaps even more by the end of the year.
Diving Oil Prices
As mentioned at the beginning, futures prices for oil “dove” last week after two weeks of growth, by more than three percent for Brent oil and more than five percent for WTI oil. The price drop is primarily due to news that Saudi Arabia intends to abandon the targeted price of $100/bbl and increase production in December to increase its market share. Surprise? Riyadh has repeatedly denied targeting a specific price, and sources in OPEC indicate that the plan to increase production does not represent a departure from the official policy of the group. Last summer, OPEC and its cartel allies announced that they would increase production by 180,000 barrels per day starting in December.
The prices were also negatively affected by the news that the conflicting parties in Libya signed an agreement resolving the dispute over the central bank and control of oil revenues, which could mean that oil exports will normalize. Due to this conflict, Libyan oil exports fell to just 400,000 barrels per day in September, while before the conflict, it was over one million barrels per day. As an increase in supply is expected, oil prices did not rise even after news of new monetary and fiscal stimulus measures from Chinese authorities, the largest since the pandemic. The market at this moment is clearly not convinced that demand can significantly increase in the short term, so oil prices at the beginning of the new week are hovering around the $70/bbl level.
Futures prices for European natural gas TTF are around €38/MWh, having pulled back from the highest level in three weeks due to stable supply despite colder weather. Flows through the UK-Netherlands pipeline have resumed after maintenance, and Russian supplies via Ukraine have remained stable. European gas storage is filled to 94 percent, although injections into storage have slowed due to weaker LNG imports, while LNG shipments from the US are heading to Asia for better profits. Considering the entire week, prices are still higher by more than 10 percent as lower temperatures are expected next week to increase demand, supporting a bullish short-term trend.
China Has Broken the Market
Agricultural commodity prices on the CBOT rose last week. Thus, the futures price of wheat rose by two percent, corn by four percent, and soybeans by more than five percent. It is interesting to look at technical analyses, which show that prices of these commodities on the exchange could rise further by the end of the new quarter.
The EC has released new estimates for the EU harvest for 2024, expecting soft wheat production of 114.6 million tons (1.5 million tons less than in August and nine percent less than in 2023), corn of 60.1 million tons (0.9 million tons less than in August and four percent less than in 2023), barley of 50.4 million tons (0.9 million tons less than in August, but six percent more than in 2023), rapeseed of 17.2 million tons (0.8 million tons less than in August and 13 percent less than in 2023), and sunflower of 9.5 million tons (0.4 million tons less than in August and three percent less than in 2023).
Hurricane “Helene” damaged part of the processing and loading infrastructure in the Gulf of Mexico, raising fears of a slowdown in loading operations. As a result, the price of soybean meal rose sharply at the end of last week. The price of corn is supported by reduced production in Europe, Ukraine, and Argentina. The price of wheat, on the other hand, is under pressure and suffers strong competition from commodities from the Black Sea. As a result, the latest inventory report is expected to show the largest wheat stocks in the US in the last four years. A significant increase in stocks is also estimated for corn and soybeans. This is an important test for the bullish trend on the CBOT.
Futures contracts for copper at the beginning of the new week are trading at $4.6/lbs and are on track to rise more than 10 percent on a monthly basis, supported by China’s stimulus measures that have raised economic and demand prospects in the world’s largest copper consumer.
Just a few months ago, the possibility of shortages of “critical minerals” such as cobalt and lithium caused concern. No more, China has broken the market. The situation regarding critical minerals no longer raises concerns about shortages, but caution is needed as low prices are not a guarantee of supply security.
More than ever, China dominates the production of cobalt and lithium, enhancing its enormous influence on the batteries necessary for electric vehicles. Prices have fallen so low that miners outside of China would struggle to make a profit, diminishing the incentive for Western investors to build their own sources and putting another blow on one of the most publicized stock market stories, that the transition to cleaner electricity from fossil fuels makes soaring metal prices inevitable.
