Commodities bulletin

Weekly look at Commodities

Precious metal prices along with energy commodities have been on an upward trajectory. Recent remarks by US Federal Reserve officials signaling an imminent federal funds rate as early as the Federal Open Market Committee (FOMC) meeting later this month have helped the push-up as the dollar index suffered losses.

“It’s better to take preventative measures than to wait for disaster to unfold, ”New York Fed President John Williams warned of the consequences of a continuation to keeping up the years-long rate-raising policy. His words which markets priced an obvious rate cut during the July 31 FOMC meetings were however later clarified by a spokesperson as “not about potential policy actions.”

Arguments for a Fed rate cut increase

Joining him was St. Louis Federal Reserve President James Bullard. Bullard told Wall Street Journal that 25 basis points rate cut would be appropriate.

“I would have preferred to just go ahead at the last meeting, and then we would have gotten out of this argument about whether we’re going to do 50 basis points at the meeting and we would have been able to come into the July meeting and ask if more was needed or not,” Bullard said.

US President Donald Trump was more than happy to hear influential FOMC’s voting members arguing or appearing to argue for a cut following his months-long tirades against the Fed and Chairman Jerome Powell in particular whose sacking he has mulled.

Trump on Friday tweeted that the central bank better ended its “crazy” quantitative tightening and said Williams’s first comments were “ 100% correct.”

Iran tensions

Global energy prices have also been lifted up due to the tensions between the US and Iran. Trump said Thursday that the US Navy near the Strait of Hormuz shot down an Iranian drone after it came too close to a US warship.

Iran’s foreign ministry however said that they had not lost any drone in the Strait or anywhere else. The US-alleged downing of Iranian UAV comes a month after Iran shot down a US military drone in the region.

Tensions are still high also thanks to Iran’s seizure of a foreign oil tanker and her crew amid accusations of ‘smuggling.’ The US demanded from Iran to release the vessel and vowed to work “aggressively” to ensure freedom of navigation in the Gulf.

Sino-US trade war

Developments (or rather the lack thereof) in the second ceasefire in the trade war between the US and China are keeping the markets worried. Negotiations so far have been two phone calls between Beijing and Washington and not enough details regarding the content have been shared with the public so far. Investors are still awaiting to see if a US team would travel to China for face-to-face as US Treasury Secretary Steven Mnuchin pointed out.

Gold prices reached 1450 for the first time in over six years amid stronger signals that the US Federal will go for a rate cut and rising tensions in the Middle East. New York Fed president John Williams said policymakers needed to add stimulus to deal with challenged the US economy is facing, particularly in lower inflation. The slow pace of Sino-US trade talks, so far on the phone, is yet another factor pushing up the precious metal. After the steep rise, gold entered into a perfectly full corrective downward move. Gold’s descent is expected to come to a halt near the lower band of the ascending channel. The likely position for that seems at 1418. If the bearish bias reaping profits goes on 1410 will be a firm support for gold. Once the fall is stopped, a potential rise-back towards 1435 to be followed by 1443 can be seen. 1450 will remain a target in case of further signs of cut from the Fed.

Oil prices have been going down but remain supported well above 68.00 dollar. The US navy shootdown of an Iranian drone and Iran’s seizure a foreign oil vessel prevented the prices from going further down. Another key factor, a fall in the International Energy Agency’s demand growth forecast to 1.1 bpd by due to economic slowdown across the world is at play. Reports that the US sending even more troops to the Mideast and a continued war of words will keep up the prices as they near the lower band of the forward-looking triangle. From where brent futures stand, a rise towards 69.50 and later 70.00 are close upward targets. Still above, we will watch 70.40. In the case of an ease in the Gulf tensions, a drawdown to 69.00 and later 68.00 will be followed.

Silver remains near a six month-high, following the footsteps of golf amid increasing signs of a federal funds rate by the US Federal Reserve. The price in XAGUSD still entered a correction mood on Friday after the initial buying frenzy. While remaining within the ascending channel, silver is aiming to reach 16.00 dollars where we had seen quite a resistance earlier. In the event of a continue fall down, we will see 15.65 as a support line. Given the Fed might give even more signals of a rate cut, the price may try to reach back to 16.40. The 16.60 high remains an upward target.

Natural gas is still bearish for a sixth consecutive month now, amid fall in demand from the European market. It has been yet another steep fall in the price due to demand issues. As we near the lower band of the descending channel, the bearish sentiment is likely to go on until summer-end demand picks up. As for now 2.450 and 2.390 remain valid points of support for such a drop. In the case of a rebound, 2.540 and 2.570 will be watched.


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