Commodity wrap - Oil, zinc, gold, soy (26.01.2021)

Oil:

• We are currently observing a price consolidation at relatively high levels
• Uncertainties related to rocket attacks in Saudi Arabia. If Iran is responsible for the whole matter, then the chances of a nuclear agreement will drastically decrease (positive for oil)
• Russia will cut exports by almost 20% in its western ports in February
• The chances of a recovery in the shale sector in the United States may be threatened due to the policies of the new administration
• The current restrictions currently limit the demand, but the fundamental and demand factors in the short term indicate the possibility of further price increases

WTI crude (OIL.WTI) is approaching key resistance in the form of a long-term downward trend line and the $55 per barrel zone that has previously acted as resistance and support. Seasonality points to a local peak in mid-February. Source: xStation5

Zinc:

• The price of zinc has been falling for the second month in a row after a series of almost uninterrupted increases since last April
• Price is about to test an important support in the form of  23.6 % Fibonacci retracement of recent upward move. This level also coincides with the local highs from October and November 2019
• The seasonality suggests a potential low and a rebound later in the year
• The prices of copper and nickel moved much higher compared to zinc. In fact, zinc remains the only industrial metal that has been selling off so heavily in the last 2 months
• Recent weakness may be related to the celebration of the new year in China and the lower demand for metals associated with steel production.
• Additionally, the recent decline in demand from China is linked to the coronavirus. The demand for zinc comes mainly from the Hebei region (a key area for galvanized steel production) in which restrictions have recently been tightened.
• An additional factor that may limit the demand for industrial metals is uncertainty over the timing and size of the US fiscal-relief package. The leader of the majority in the US Senate indicates that an aid bill is unlikely before mid-March
• The behavior of nickel is slightly different - there is no stagnation in demand here, which is additionally increasing due to the demand from the battery production sector

The price has dropped by almost 9% since the December high. Nevertheless, there are signs that the current weakness is temporary given the continued economic recovery in China. Current prices indicate that about 80-90% of production is profitable in terms of operating costs. Source: xStation5

Gold:

• In the short term, the rebound on TNOTE gives a strong demand signal for gold. On the other hand, we are seeing a stronger dollar that does not help precious metals.
• The divergence between TNOTE and EURUSD and its convergence should rather support the rebound in gold prices.
• Nowadays, precious metals have lost their status as a safe haven asset and are often largely dependent on sentiment in the stock market and the US dollar.
• Inflation issues in the United States remain crucial - in this case, gold may benefit from growing concerns related to a rebound in inflation in the United States

The divergence between TNOTE and EURUSD may theoretically give a chance for a rebound in gold prices. On the other hand, if the rebound on TNOTE is linked to market concerns, gold's position may be at risk. A strong support zone from the short-term perspective is located around $ 1820/oz, while resistance lies around $ 1870-1880/oz. Source: xStation5

The current price situation, positioning and the amount of gold in ETF vaults resembles the consolidation at the beginning and end of 2019. These were only stops before greater price increases. On the other hand, a similar situation as in 2013 may occur. Currently, however, the market and fundamental situation looks different. Source: Bloomberg

Soy:

• Soybean price rebounded after last week's sell-off. The monthly candle turned bullish again, which limits the potential for a strong supply signal.
• A price pullback from last week called into question the strength of the rally.
• Currently, investors are looking for a similarity between 2020 and 2010, when prices peaked and then fell significantly.
• Interestingly, exports of soybeans and corn to China in 2010 were very high. Corn exports in 2020 are likely to reach new heights, along with very high levels of soybean exports. So one can see the similarities regarding the fundamental factors.
• Soybean price was flat in 2011, before a strong retraction at the end of the year. On the other hand, historic highs were reached in 2012.

Soybean - 2011 could be a warning signal for soybean should the harvest forecast improve. Nevertheless, it may turn out that 2022 will bring new hopes for the bulls on the agricultural commodity market. Source: xStation5

Speculators clearly cut their positions earlier this year. A very similar behavior took place in 2011, but after that the price was trading flat for almost a full year. Source: Bloomberg