Commodities Weekly: Gold at 2-1/2 month high as safe haven status reborn

Precious metals are on the rebound as the US dollar goes in to pause mode after recent gains, while base metals firm up on supply-side issues. Crude oil prices push higher amid geopolitical tensions while weather-related supply side issues help agricultural commodities.

Precious metals

GOLD advanced to 1,234 yesterday, its highest level since July 26, as a weaker phase for the US dollar promoted the metal’s safe haven status, while a pickup in consumer demand from India for the festive and wedding seasons also boosted the precious metal. Adding to the bid bias, IMF data released yesterday showed that Poland increased their gold holdings to a record high of 117 tonnes in September, with suspicions other central banks may have been buying too.

Gold’s rally stalled just short of the 200-week moving average at 1,235, which has capped prices for 12 weeks. Another resistance points comes in at 1,239, which is 38.2% Fibonacci retracement of the April 11 to August 16 drop.

Speculative accounts increased their net short gold positions for a fourth week, with net shorts at their highest since April 2001, according to the latest positioning snapshot as at October 9, published by CFTC.

 

Gold Daily Chart

Source: Oanda fxTrade

 

SILVER looks set to rally for the first week in three as the US dollar takes a breather after recent gains. The metal closed above the 55-day moving average for the first time since June 14 yesterday, and looks poised to advance for the fourth day in a row today. The gold/silver (Mint) ratio is holding near the middle of the recent seven-week range of 80.90 to 85.20.

Speculative accounts increased net short silver positions for the first time in five weeks, in the week to October 9, CFTC data shows.

 

PLATINUM rose for a second straight week last week, surging through the 100-day moving average for the first time since March 27, to reach the highest level in three months. The October 9 snapshot shows speculative investors adding to net long positions for a fifth straight week to their highest since the week of May 8, according to the CFTC data.

 

Platinum Daily Chart

Source: Oanda fxTrade

 

An association which represents platinum mining companies in Zimbabwe has pleaded with the local government to scrap hefty levies totaling more than 25%, as they threaten the local mining industry. The South African nation produces more than 400,000 ounces of the precious metal each year, making it the third largest platinum producer after South Africa and Russia.

 

PALLADIUM is hovering just below 8-1/2 month highs after posting gains of more than 30% in two months from August. A weaker US dollar has helped the precious metal more recently, but the initial drive came from a pickup in industrial demand.  Speculative accounts added to net long positions for a seventh week, data to October 9 from CFTC shows, with net longs now at their highest since June 12.

 

Base metals

Just as industrial demand for COPPER appeared to be picking up, issues on the supply side are coming to light. News from Chile, the world’s largest copper producer, has revealed that four smelters are to shut for up to 75 days amid struggles to comply with tougher emissions standards in the country by mid-December. At the same time, latest customs data shows China imported a record 1.93 million tons of copper concentrate in September, showing still robust demand despite the ongoing US-China trade wars.

Copper rose for the first time in three months last month, posting the biggest monthly gain this year. The base metal has tested the 100-day moving average on two occasions so far this month, but has failed to close above it. The metal is currently at 2.7642 with the 100-day moving average at 2.8091.

 

Energy

CRUDE OIL looks set for its third straight day of gains after a key 50% retracement level held last week. Saudi-US tensions have been building up on the back of the disappearance of journalist Jamal Khashoggi, with investors fearing the worst-case supply scenario if the US imposes sanctions on Saudi Arabia. Evidence of a further slowdown in Iran oil exports ahead of US sanctions being imposed on November 4 is also helping sentiment. WTI is now at $71.972 after hitting a three-week low of $70.58 last week.

Tomorrow’s release of weekly crude oil stocks as at October 12 by the EIA is expected to show a drawdown of 281,000 barrels, according to the latest survey of economists. That would be with first drawdown in four weeks following gains of 1.85, 7.98 and 5.99 million barrels respectively.

 

WTI Daily Chart

Source: Oanda fxTrade

 

NATURAL GAS prices are being lifted by the forecast of below average temperatures across eastern US in the October 20-24 period. Prices are recovering from the first down-week in four last week, and are looking to test the October high of 3.39, which in turn was the highest since January 31.

 

Agriculturals

WHEAT prices continue to be supported by supply-side issues, mostly as a result of weather conditions. A report by the European Commission estimates that EU wheat shipments are down about 23% on-year during the current season started July 1. In addition, news that record-low temperatures across the US western Great Plains is raising fears about crop damage, while reports that dry weather in northern China may hurt wheat planting, are all implying that the supply side is looking a bit shaky.

Wheat is now at 5.11, holding just below the 55-day moving average at 5.13, which has capped prices since September 11.

 

SUGAR is being boosted predominantly by events in Brazil. Firstly, recent reports suggest Brazil’s sugar production will be lower this year than last, with the outlook for next year also lower. Secondly, the government’s shift in its gasoline pricing policy has made ethanol more attractive, and hence seen as lifting demand for sugar. Thirdly, the local Real currency has rebounded versus the US dollar making exports more expensive.

Sugar looks poised to advance for the third week in a row and is currently testing the 55-week moving average, an average that has capped the commodity on a closing basis since late-February. Sugar is now at 0.1250, the same as the 55-week moving average, and has rallied more than 27% from the August low.

 

Sugar Weekly Chart

Source: Oanda fxTrade

 

CORN touched the highest in four months yesterday, buoyed by the latest USDA crop report released Thursday, which showed a lower estimate for US crop yields. Corn prices opened above the 200-day moving average for the first time since August 17 yesterday, powering higher to reach 3.683, the highest since June 14. The commodity is currently at 3.662, with the 200-day moving average at 3.621 and the 200-week moving average at 3.617.

 

SOYBEANS traded above the 100-day moving average for the first time since June 4 yesterday, posting its biggest one-day gain since August 16, as weather-related issues affected the supply side. Wet weather across the US Midwest has raised crop quality concerns while it is also too early to estimate the overall impact hurricane Michael has had on crops.

The commodity is at 8.823, hovering near two-month highs, but is currently down on the day for the first time in four days. The 100-day moving average is at 8.718.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Andrew Robinson

Andrew Robinson

Senior Market Analyst at MarketPulse
A seasoned professional with more than 30 years’ experience in foreign exchange, interest rates and commodities, Andrew Robinson is a senior market analyst with OANDA, responsible for providing timely and relevant market commentary and live market analysis throughout the Asia-Pacific region. Having previously worked in Europe, since moving to Singapore he worked with several leading institutions including Bloomberg, Saxo Capital Markets and Informa Global Markets, proving FX strategies based on a combination of technical and fundamental analysis as well as market flow information. Andrew began his career as an FX dealer with NatWest and the Royal Bank of Scotland in the UK.