Commodity Wrap - Gold, Copper, Natural Gas, Sugar (17.08.2021)

Gold

• Gold price rebounds as US yields drop and in spite of strong US dollar

• Outlook for the future monetary policy in the United States (rates + QE) will be key factor for gold

• 2013 and 2014 were bad years for gold but those were years when QE taper was announced and actually began

• Speech from Powell today in the evening will be important for gold as it will show whether Fed Chair changed his view on jobs market or inflation

• In case Powell changed his view, yields may climb and market may become more focused on 2-year yields

• USD market still suggests that gold is relatively expensive

• Interestingly, number of short speculative positions on gold has increased recently

US yields are once again extremely low. However, it should be noted that 2-year yields do not point to rates being changed over the next two years. Today's speech from Powell may show whether the bond market is correct. Source: Bloomberg

Number of open short positions on gold increased significantly. Source: Bloomberg

Copper

• Copper prices found itself under pressure following release of data from China, that suggested slowdown in the economic activity in the country

• On the other hand, copper stockpiles remain relatively low and continue to shrink

• Wage agreement was reached with workers in Escondida mine in Chile, reducing risk of supply issues

• Should USD continue to strengthen, especially against Chinese yuan, upward potential for copper prices may be limited further. On the other hand, should Asia combat the fourth wave of Covid-19, economic recovery should resume quickly

Copper stockpiles in China and other parts of the world remain low, what allows copper prices to remain at relatively high levels. Source: Bloomberg

Copper price test a key support at the 23.6% retracement. Moreover, price threatens to finish the week below the upward trendline for the first time since March 2020. Source: xStation5

Natural Gas

• Natural gas price is experiencing the largest downward correction since April 2021

• Price remains close to $4.0 MMBTU and above the upward trendline, as well as above the 50-session moving average

• Seasonal patterns hint at a potential sideways move lasting until the first week of September

• EIA expects lower stockpiles at the beginning of heating season than last year

Natural gas prices dropped below the lower limit of the market geometry, marking the largest downward correction during the ongoing upward impulse. Seasonal patterns hint at a potential sideways move during the next 3 weeks. Source: xStation5

EIA forecast point that natural gas stockpiles may reach 5-year low in January 2022. US natural gas production remains flat but LNG exports are on the rise. Source: EIA

Sugar

• Halt of the upward trend on the coffee market does not impact the uptrend on the sugar market. Sugar price jumps above 20 cents per pound

• Sugar trades at the highest level since 2017 in spite of BRL weakness

• Coffee and sugar crops are no longer threatened by frost. Instead Brazilian crops are threatened by high temperatures and drought! Current weather conditions are being compared to those from 2014

• Seasonal patterns hint at a possibility of continuing upward move. However, sugar has been overbought by speculators since October 2020, similar to 2017

• Sugar cane forecast was lowered due to weather conditions. Production is now expected at 490-500 million tonnes during 2021/22 season, down from previous 605 million tonnes

• Sugar prices, however, may be at risk due to recent drop in oil prices

Weather conditions have drawn investors' attention to sugar. Number of open speculative positions has increased significantly recently. Source: Bloomberg

Sugar prices approach 78.6% retracement of the downward move from 2016-2018 period. Nevertheless, once supply concerns wane, sugar may be impacted by recent pullback on the oil market. Source: xStation5