Commodity Wrap - Oil, gold, silver, copper (21.05.2024)

Crude Oil:

• Crude oil has shown limited reaction to the risks associated with the situation in the Middle East.
• WTI crude oil is falling towards a significant support level around $78 per barrel.
• It is worth noting that OPEC's production capacity remains high.
• At the same time, production in Iran remains high compared to recent years, but exports are decreasing.
• The next OPEC+ meeting will take place in June, and the market expects the additional production cuts to be maintained, although this may not be fully priced in by the market.
• US oil inventories remain significantly below the 5-year average, and the potential for production declines in the near future, along with strategic stockpiling, could lead to a further decrease in oil inventories.

U.S. oil inventories remain below the 5-year average. Source: Bloomberg Finance LP, XTB

Iran's oil exports are falling. It is worth remembering that the main buyer of Iranian oil is China. Source: Bloomberg Finance LP, XTB

Looking at the shifting correlation between the number of drilling rigs in the U.S. and oil production, theoretically, U.S. producers may struggle to maintain such high production in the near term. Source: Bloomberg Finance LP, XTB

There has been a recent break of the 50-period average by the 25-period average from above. The last such signal in 2023 generated another 1.5 months of declines of about 18%. On the other hand, the current fundamentals are somewhat different, but if history were to repeat itself

GOLD:

• Gold has seen a strong increase at the beginning of this week due to uncertainty surrounding the situation in the Middle East and increased expectations of interest rate cuts in the US.
• However, Federal Reserve bankers have not indicated that one inflation data point would change their perception of the inflation trend.
• However, Federal Reserve bankers have not indicated that one This week, the important data from the US will include PMI indices, which are not expected to significantly change the expectations of interest rate cuts by the Federal Reserve. data point would change their perception of the inflation trend.
• The open positions in the precious metals market have reached a value of $215 billion.
• Gold is moving in line with its maximum behavior from recent years. If this trend continues, further increases are still possible, especially during a period of heightened expectations of interest rate cuts in the US.
• After the recent rebound in gold since the beginning of May, ETFs have started buying gold, which is the largest increase since March of this year.

ETFs have begun to buy gold, which could be a key factor in the continuation of a further bull market in precious metals. Nevertheless, for the moment these are limited purchases.

Positioning on the COMEX has not changed much recently, but long positions on the Shanghai Stock Exchange are rising strongly. Net positions are at their highest since 2020. Source: Bloomberg Finance LP, XTB

Gold is moving in line with its 5-year maximum behavior. This could suggest consolidation in the next 2 weeks, but then a continuation of strong increases, particularly around the 130-150 session of the year. Source: Bloomberg Finance LP, XTB

SILVER:

• The rise in silver prices has been driven largely by uncertainty over global copper ore production. The majority of silver production occurs with copper ore mining
• In addition, demand for silver continues to grow, mainly due to photovoltaics, which is expected to lead to a 4th consecutive large deficit in the market
• The gold-silver price ratio has fallen to its 10-year moving average. Looking at the 20-year average, the valuation of silver at current gold price levels should be $35 per ounce, while the long-term average of the price ratio suggests that silver could reach as high as $45 per ounce if gold prices remain unchanged

The gold-silver price ratio has been in consolidation for more than 2 years between 79 and 90 points. Theoretically, bull markets in precious metals mean that silver or platinum should gain more strongly than gold at some stage of the cycle. The price ratio indicates that we may only be at the very beginning of this cycle, and suggests at least a decline to the vicinity of 68 points. This would give a valuation of $35 per ounce for silver, with gold prices holding at $2,400 per ounce. On the other hand, at 2500 it is already at $36.7 per ounce. Source: Bloomberg Finance LP, XTB

Silver is already gaining 28% this year and has rebounded from seasonality. However, the maximum behavior of the last 5 years shows that this is not at all the largest increase we have experienced recently. In general, seasonality indicates increases around 130-150 sessions per year. Source: Bloomberg Finance LP, XTB

Silver has given a weak overbought signal on the 100-session average, but it is not yet a strong signal on the 1-year average. It is still far from overbought on the 5-year average. Source: Bloomberg Finance LP, XTB

Copper:

• The copper market is experiencing a situation where there are huge concerns about future supply, while at the same time demand is limited
• Stocks on exchanges around the world and in China remain high. Credit action in China is at a low level
• At the same time, however, BHP's potential acquisition of Anglo American could threaten to reduce the available supply of copper ore worldwide
• The market has seen a significant increase in positive positioning for copper
• The number of open positions for industrial metals worldwide is estimated at $227 billion, the highest level on record
• Many commentators in the market indicate that the massive increase is speculative rather than related to the real market. Demand is rather weak, while supply remains high.
• Nonetheless, the long-term outlook for the copper market indicates that the price could even be duplicated, without corresponding investment in mines, given the strongly upward market, due to demand going from new technologies or electric cars

Copper stocks on exchanges remain high, showing that demand remains limited. Source: Bloomberg Finance LP, XTB

Speculative positions on copper are rising to extremely high levels, although they are still short of 2021 peaks. Source: Bloomberg Finance LP, XTB