The benchmark, CRB Commodity Index, ended the week 4,6% lower.
$SPDR Gold Shares(GLD)$ $Light Crude Oil - main 2205(CLmain)$ $Corn - main 2205(ZCmain)$
All sectors were lower, with energy and grains being the biggest losers of the week. There were only a handful of commodities with a positive return over the last week, namely, Natgas, Coffee, Orange Juice and Cocoa.
Crypto also made new higher highs and the sector continues its recent uptrend.
Moreover, it seems like two new major trends seem to emerge in the commodity space.
Here is my latest playbook:
Gold with huge ETF inflows - but parallels to 2013 are worrisome
Gold is heading for its strongest increase in ETF holdings since 2016 as a structural long emerges in response to growth and inflation worries as well as rising bond and equity market volatility. The gold market is, therefore, able to offset rising Realyields for now.
Nevertheless, I need to keep highlighting that the parallels to the major gold selloff during 2013/2014 are still in place.
Natgas should outperform oil
As I wrote in last week’s edition of The Kuemmerle Report, I see strong momentum in the forward NatGas contracts right now. Inventories are low and at this time of the year, those inventories getting refilled. Therefore Natgas has to be bought which is bullish for the forward futures contracts.
We also can spot the strength of Natgas on a relative basis if we compare the performance of both energy sources on a monthly basis. While Crude Oil could gain 3,7% since the beginning of March, Natgas was able to surge as much as 29,9%. This also results in this ratio chart.
Right now Soft commodities show us again why they’re so unique
While energy and grain markets are very much correlated, soft commodities are driven by their own market dynamics. For example, you have cocoa which is mainly driven by the developments in parts of Africa then you’ve got sugar cane and coffee where prices are mainly driven by developments over in Brazil. This is also the main reason why I enjoy trading in this market so much. Diversity. Like during the last week, you can many times find a haven to hide in softs when the rest of the commodity market is retreating.
Farmers prefer planting soybeans now over corn
I discussed trading opportunities emerging from this news inThe Kuemmerle Report.
Elsewhere In The Macro World
OPEC increased its oil production target as planned. OPEC+ has boosted output targets by 400,000 bpd each month since August 2021. From May 1, that monthly target increase will rise slightly to 432,000 bpd.
Saudi Arabia and the United Arab Emirates, which hold the bulk of spare production capacity within OPEC, have resisted calls for higher output, saying the group should stay out of politics and focus on balancing oil markets. In other words - they don’t want to upset Russia.
Meanwhile, the US Government announced that it will release 1 million bpd of SPR reserve to curb high gasoline prices. (largest ever Strategic Petroleum Reserve release)
The move comes as the Biden administration seeks to tackle surging oil and gas prices. IMO this step will pressure oil prices for now - but the US has to increase oil production till year-end in order to not run out of oil reserves, which would be a fiasco. Bearish for now - but bullish in the long term? This was at least the reaction of market participants when you take a look at the forward curve where the nearer contracts were sold and the longer-dated contracts were bought.
I would recommend you to read this short Twitter thread I wrote on Sunday.
This week look out for:
- ISM Service PMI on Tuesday
- Release of the FOMC Meeting Minutes on Wednesday
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