Gold, Silver, and Palladium Commentary September 16, 2020

Gold, Silver, and Palladium Commentary
September 16, 2020

The front month contracts of gold and silver are up from last week 1.21% and 1.79%, respectively. Gold continues to trade in a pennant type pattern.  It is currently near the point of the pennant and would therefore expect a more pronounced move in the next few days.  The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) fell -0.58% compared to last week, still moving sideways since early August.   With the front month gold and silver contracts closing yesterday at $1956.30 and $27.35, respectively, the gold/silver ratio is now 71.54, 9.42% higher than the corresponding 15-year average.   December gold (Figure 2) closed yesterday at $1966.20, up 1.18% from the close on September 8.  December silver (Figure 3) closed at $27.46, up 1.75% since last week, also trading in a pennant pattern.

From an open interest perspective, gold’s total open interest is increasing slowly, ~3% since last week, but on low volume.   The latest CFTC data for gold for non-commercial net position of funds show funds are net long, near upper historical levels and rose slightly this last week.  This rise was driven by an increase of non-commercial long positions while non-commercial short positions again remained unchanged.  Silver total open interest rose this week, for the first time since August 10, but on low volume.  The latest CFTC data show the silver non-commercial net positions of funds are flat with non-commercial’s equally reducing long and short positions.  As mentioned last week, the net non-commercial position of funds and total open interest continue to trend in opposite directions since mid-August.   The increase in total open interest this last week may be an indicator that non-commercial’s or commercial’s are again adding to their positions.

Now for Palladium.  Last week we said that rhodium was rising to levels seen early in the year.   As high rhodium prices can result in increased palladium demand, we mentioned the price of palladium may rise.  Palladium closed at $2414.50 yesterday up 4.71% from the close last week Tuesday breaking above $2365 at the close on July 27.  Total open interest jumped 4% last week, rising along with increasing price, possibly indicating an increase in long positions.   But this rise was on low volume.   The latest CFTC report shows net non-commercial fund positions increased 2% since the previous report.   The palladium/silver ratio climbed slightly this week with the increase in palladium.   As a note, rhodium climbed an additional 8% this last week which may continue to pressure palladium higher as well.

The final thoughts I leave with you are regarding the federal reserve meeting held yesterday and today, with an announcement this afternoon.  Per Gary Wagner’s article from yesterday, found here, it is expected the Federal reserve will release its ‘dot plot’ which will map out the basic intent and timeline that the Federal Reserve members believe will be necessary to keep interest rates at near zero levels until 2023.  The release of Federal Reserve project materials, found here,  confirmed plans to maintain rates near zero through 2023.  As the price of gold tends to follow real interest rates, today’s announcement implies continued support for the price of gold.

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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Corn Calendar Spreads During Corn Price Rally

Corn Calendar Spreads During Corn Price Rally

September 15, 2020

Corn prices have rallied during the last 4 weeks.  December Corn has increased nearly 55 cents from August 10, with the December 2020 Corn contract settling at $3.65 on Friday, September 11, 2020.  On an absolute level prices are still relatively low; calendar spreads are at historical high levels.  The December 2020 – March 2021 corn spread has moved to the highest level to for this time of the year.  Given the structure of the corn forward curve, should prices even pull back, the December-March Corn calendar spread could continue to increase.

The chart below can be constructed in the Fundamental Analytics platform under Prices > Corn > Continuation > High-Low-Close Candlestick.

Corn Candlestick Time Series

The chart below can be constructed in the Fundamental Analytics platform under Prices > Corn > Instruments and Spreads.


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The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Refiners’ Margins are at Historic and Painful Lows

Refiners’ Margins are at Historic and Painful Lows

September 11, 2020

As one measure of refineries’ profitability is the profit margin (“Crack Spread”), the difference between the price of a refined product and the price of the underlying crude oil.  For example, the first chart below is the difference between the December Heating Oil (ULSD) price and the December WTI Crude Oil price.  The current December Crack spread (black line) has been declining since January and is currently below $10.  We need to go back to the 2009 recession to observe lower Heating Oil crack spreads.

Comparing the December Heating Oil crack spread with the December RBOB Gasoline crack spread (the second chart below), we observe that the Gasoline crack was even negative mid-March when the US health authorities announced the COVID-19 lockdown.  It has been recovering, but still at historically low levels

The charts below can be constructed in the Fundamental Analytics platform under Prices > Instruments and Spreads > ULSD NY Harbor, RBOB Gasoline.


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary September 9, 2020

Gold, Silver, and Palladium Commentary
September 9, 2020

The front month contracts of gold and silver are down from last week -1.79% and -5.69%, respectively. Gold continues to trade in a pennant type pattern and is currently near the top of the pennant.  The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) rose 3.98% since last week, moving sideways since early August.   With the front month gold and silver contracts closing yesterday at $1933.00 and $26.86, respectively, the gold/silver ratio is now 71.955, 10.6% higher than the corresponding 15-year average.   December gold (Figure 2) closed yesterday at $1943.20, down 1.80% from the close on September 1.  December silver (Figure 3) closed at $26.99, down 5.69% since last week, settling into a sideways movement.

From an open interest perspective, gold’s total open interest increased 0.6% since last week and is essentially flat since early August, and it is still well above the 5-year average.   The latest CFTC data for gold for non-commercial net position of funds showed an increase to levels seen in the August 11 report.  This was driven by an increase of non-commercial long positions while non-commercial short positions were essentially unchanged.   Silver total open interest continues to fall from the recent peak on August 6 and is down 23.5% since that date.  However, the latest CFTC data show the silver non-commercial net positions of funds are up 2.7% at the same time.  Both non-commercial longs and shorts are up for the week.    It is interesting to note the net non-commercial position of funds and total open interest have been trending in opposite directions since mid-August.  The reduction in total open interest seems to be driven by a reduction in net commercial positions possibly indicating commercials have a lower need for hedging due to silver on-hand due to lower demand.

Now for Palladium.  Palladium closed at $2305.80 yesterday, down 0.23% from the close last week Tuesday and remains range bound between $2140 and $2365.   While total open interest is up 1% since last week, it is down 7% since mid-August and a massive 64% since January 2020.   The latest CFTC report shows net non-commercial fund positions increased 8% since the previous report.   The palladium/silver ratio jumped this last week with the reduction in the price of silver.   It should be noted the price of rhodium continued its climb and is now above $13,000.  The last time rhodium hit these levels, palladium prices soared to $2700 as catalytic manufactures began to replace rhodium with more palladium in an attempt to reduce the overall cost of materials.

The final thoughts I leave with you are regarding inflation, inflation expectations and the future price of gold.   It is often stated that inflation is affected by expectations of inflation.  From a very simplistic standpoint, as consumers expect increasing inflation, they often pull forward purchases, increasing demand and higher demand, price.  Therefore, in a way, the expectation of inflation can drive inflation.   This is important as much has recently been written and said about higher inflation driving down real yields and as we have stated in the past, the price of gold is recently inversely correlated to real yields (as real yields fall, the price of gold rises).    I believe the graph below, Figure 5, tells an interesting story regarding inflation and expected inflation.  Immediately after the initial Fed COVID package occurred the University of Michigan inflation expectations rose significantly to a level just above peaks in 2015 and 2018.  But the short-term level has not risen higher, even with the numerous doomsday scenarios regarding fiat currencies.   Unless the short term inflation expectations continue higher or actual treasury rates continue to fall, it appears that upward pressure on gold due to real yields will be limited for the foreseeable future.


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Crude Production Took a Hit from Hurricane Laura

Crude Production Took a Hit from Hurricane Laura

September 8, 2020

Due to Hurricane Laura, Crude Oil Production decreased by 1.1 million barrels per day to 9.7 million barrels per day, according to the latest EIA supply/demand report.

A large crude stocks draw was also reported, and yet prices fell as it became clear that the sharp drop in domestic crude supplies and production would be temporary.  The production in the Gulf of Mexico appears to be quickly recovering after Hurricane Laura, so prices sold off.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > DOE > Crude Oil > Production.

 


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Hedge Funds Now Net Long in Corn

Hedge Funds Now Net Long in Corn

September 8, 2020

In the last weeks two Hedge Funds have moved from net short positions to net long positions, according to the CFTC Commitment of Traders report.  Hot weather and strong Chinese demand lifted prices and supported hedge fund interest in corn as yield estimates continue to decrease and demand recovers in this pandemic-era.

The chart below can be constructed in the Fundamental Analytics platform under Analysis > Time Series > Continuation > Corn > Fundamentals > Funds Net Position.

 


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Best Regards,

The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Gold, Silver, and Palladium Commentary September 2, 2020

Gold, Silver, and Palladium Commentary
September 2, 2020

The front month contracts of gold and silver are up from last week 2.95% and 8.46%, respectively. Gold nearly regained the previous week losses where silver gained back those losses plus more.  The ratio of the 1-month Gold contract to the 1-month Silver contract (Figure 1) fell 5.35% since last week, falling below the recent low set on Aug 10.  With the front month gold and silver contracts closing yesterday at $1968.2 and $28.49, respectively, the gold/silver ratio is now 69.09, 7.6% higher than the corresponding 15-year average.  December gold (Figure 2) closed yesterday at $1978.9, up 2.90% from the close on Aug 25, breaking above a descending channel on September 1, 2020.  December silver (Figure 3) closed at $28.65, up 8.4% since last week, appearing to break above an area of constricting consolidation.

From an open interest perspective, gold’s increase occurred with a 1.4% decrease in total open interest, but total open interest has seen little change since the beginning of August.  The latest CFTC data for gold net fund positions show a reduction in long position while short positions are on the low end of the range seen since the end of June 2020.  Silver total open interest is down 12.3% for the week and down 15.2% for the last two weeks combined.  The latest data from the CFTC show the reductions in total open interest have occurred as net funds positions have risen driven by an increase in long and a decrease in short fund positions.

Now for Palladium.  Palladium closed at $2,311.1 on September 1 up 5.35% from the close on August 25.  Palladium remains range bound between $2140 and $2365.   While total open interest is up 2% since last week, it is down 4% since mid-August.  Open interest is still well down from the last few years and at levels not seen since 2004.  CFTC net fund positions in palladium have also continually decreased since the end of July according to the latest CFTC report.  The palladium/silver ratio remains nearly constant as palladium and silver have tracked in a similar manner for the last month, implying similar market forces are acting on both.  This is expected as both palladium and silver are used heavily in industrial applications.  The increase in the price of rhodium has also leveled off since its increase beginning near the beginning of July.  A continued increase in either silver or rhodium may be an indicator that palladium will also head higher.

The final thoughts I leave with you are regarding the lending or leasing of gold by central banks.  Several articles have been written over the last few months regarding the lending and leasing of gold by central banks.  There are some who theorize that such practices put our financial system at risk; we are not of that opinion.  A paper published today on the gold.org site provides history on the practice with respect to the gold lease rate as well as historical perspective of the practice.  If you are not familiar with the practice I would recommend the paper which can be found here.


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The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Hurricane Laura Halts Crude Oil Production in the Gulf of Mexico

Hurricane Laura Halts Crude Oil Production in the Gulf of Mexico

August 31, 2020

Hurricane Laura has forced the evacuations of crews from offshore platforms in the Gulf of Mexico. It has been estimated that around 1.6 million barrels per day of offshore crude oil production has been halted. It entails a loss of about 84% of U.S. offshore crude oil production in the Gulf of Mexico. Additionally, producers have halted about 1.65 billion cubic feet per day of natural gas production from the Gulf of Mexico.  We will update the production chart below once the storms have end.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > DOE > Crude Oil > Production > Domestic Production > Total US.

 


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If you have any questions, please contact our Managing Director, Joel Fingerman, at joel.fingerman@fundamentalanalytics.com

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Best Regards,

The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Dry Weather and Derecho Windstorm in Iowa Has Set Back the Corn Crop

Dry Weather and Derecho Windstorm in Iowa
Has Set Back the Corn Crop

August 24, 2020

Surveys of corn yield in the US Midwest last week estimated 2020 corn yields will likely total 177.5 bushels per acre (bpa). The USDA continues to survey the damage to the Iowa crop from the August 10 Derecho windstorm and with dry weather conditions persisting across the Midwest Corn Belt, today’s Crop Progress report shows a significant downgrade in corn quality. The report for August 9 showed 69% of the Iowa’s corn crop to be in good to excellent condition with the biggest quality decrease in Iowa, compared to today’s report for August 16, which shows 58%.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > NASS > Corn > Condition > Excellent + Good > Iowa.


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If you have any questions, please contact our Managing Director, Joel Fingerman, at joel.fingerman@fundamentalanalytics.com

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Best Regards,

The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.

Drop in Commercial Air Travel Impacts Jet Fuel Demand

Drop in Commercial Air Travel Impacts Jet Fuel Demand

August 21, 2020

In mid-March a national emergency was declared.  Routine business air travel stopped and discretionary air travel halted.  The resulting demand for jet fuel dropped from around 1.9 million barrels a day to less than 600,000 barrels a day.  Demand had recovered to about 1.1 million barrels a day by the beginning of August but now it is decreasing again.  It now appears that the US business travel will not increase after this summer vacation period, so going forward, we do not expect a further recovery of jet fuel demand and there remains the downside possibility of demand again falling.

The chart below can be constructed in the Fundamental Analytics platform under Fundamentals > DOE > Implied Demand > Commercial Kerosene-type Jet Fuel > Total US.

 


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Best Regards,

The Fundamental Analytics Team

The information provided here is for general informational purposes only and should not be considered individualized investment advice. All expressions of opinion are subject to change without notice in reaction to shifting market conditions.