Commodity Wrap - Gold, Coffee, Soybean, Oil

Gold

• Precious metals react to rise in US yields and strengthening of the US dollar

• Gold price dropped below $2,000 per ounce. Key support zone at $1,970-1,980 and $1,950

• Copper-to-gold ratio has been dropping since mid-July and has almost fully adjusted to US yields in the long-term. Two possible short-term scenarios - yields rally is exaggerated or copper is undervalued relative to gold

• ETF purchases are a key driver for gold market sentiment right now. Holdings has dropped slightly recently but still sit around 31% year-to-date

• Decline in net speculative positioning amid ETF gold sales could trigger a correction

• US yields remain an important factor - yields jumping above 0.62% could be warning signal for gold bulls

ETFs have been selling gold recently. Number of short positions is rising. Source: Bloomberg

Taking a look from a long-term perspective, one can see that copper-to-gold ratio adjusted to US yields. However, continued steep rise in US yields may be a warning signal for bulls. Source: Bloomberg

Coffee

• Coffee fundamentals improved significantly. ICO now forecasts a deficit on the coffee market in 2019/20 season

• The latest forecast hints at a deficit of 0.5 million bags while forecast from June pointed to a surplus of 1.85 million bags. There was a surplus of 5.136 million bags last season

• Strong demand, visible in declining stockpiles, causes analysts to revise forecasts. Coffee stockpiles tracked by ICE dropped to the lowest level in 3 years

• Shift in positioning is a welcome change for bulls, who look to continue the upward move. However, stronger BRL limits coffee price gains

Coffee stockpiles are at the lowest level in 3 years. Prices were much higher 3 years ago. Source: Bloomberg

Drop in the number of short positions and simultaneous rise in the number of long positions creates a good landscape for continuation of the upward move. On the other hand, strong BRL limits gains. Source: Bloomberg

Soybean

• Agricultural goods under pressure amid US-China tensions

• Corn rebounds off YTD lows. Soybean trades above YTD lows but has pulled back recently

• Seasonal patterns hint at a continuation of declines until the second half of August. Net speculative positioning declined

• Previous weakening of BRL may encourage China to buy more soybean from Brazil at expense of the US product

• Imports of US soybean to China are below the 5-year average. Harvest data scheduled for September will be a key

• Quality of US crops improved to the highest level since 2018. Expectations of poor harvest are diminishing

• Key WASDE report will be released on August 12. Market expects upward revision to production forecasts

• US and China will assess implementation of the 'Phase One' trade deal this week. Data shows that China is far from complying with terms of the deal

US crop quality is at the highest level since 2018. Upward revisions are expected to production estimates amid good weather forecasts. Source: Bloomberg

China continues to import relatively small amounts of US soy. However, key data will be released in September. Source: Bloomberg

Seasonal patterns hint at continuation of declines. Corn prices remain low. Source: xStation5

Oil

• Oil prices hold onto recent gains ahead of US oil inventory data

• The latest report showed a massive draw in inventories, triggering a significant upward move. However, WTI price remains below 200-day moving average

• Lack of major changes in positioning facilitates relatively calm trading on the oil market. Contango is little change as well

OIL.WTI is attempting to break above the 200-session moving average. WTI has not traded above this hurdle this year yet. Moreover, price trades above the $41 a barrel, which is an important support level along with the 50-session moving average ($40 area). Unless we see a break above either of the moving averages, oil may continue to trade within a range. Source: xStation5