Commodity Wrap - Soybean, Silver, Gold, Oil

Soybean

• Soybean price return to 900 cents area

• US crop quality data caused a pullback on the soybean market. Combined amount of "good" and "excellent" grade crops move from 68 to 69%

• Market still hopes to see China increase imports of US soybean. Nevertheless, relations between US and China deteriorate recently

• Improvement in relations could be signalled by US imports to China exceeding average values for the season. However, it looks unlikely for now. China continues to buy soy from Brazil, who offers cheaper product

• Speculative positioning continues to point to soy being overbought. Number of short positions is at an extremely low level. Seasonal patterns hint at price declining until at least the end of August

Brazil continues to be the main supplier of soybeans for China. Source: Bloomberg

Small rebound in Chinese imports of US soybean. Nevertheless, it is still within seasonal range. Source: Bloomberg

Soybean looks to be strongly overbought. However, speculative positioning is off 5-year highs. Source: Bloomberg

Silver

• Silver futures and spot price break above $20, reaching the highest level since September 2016

• $21.70 and $27.00 can be seen as the next resistance levels

• Silver still has a lot of room to run higher compared to gold

• Seasonal patterns hint at moderate price gains in the coming weeks and a pullback during fall

• Speculative positioning does not hint a silver market being overbought

• Precious metals continue to gain amid low interest rates around the World. Additionally, silver market is experiencing massive deficit this year due to significantly increased demand from ETFs

• ETFs increased their silver holdings by 37% this year, the biggest increase among all precious metals

Simultaneous increase in the number of open long and open short positions means that silver is not overbought yet. Strong ETF buying could be spotted in the past few weeks. Source: Bloomberg

Silver trades around $20.50 per ounce, the highest level since 2016. However, this market still looks undervalued compared to gold. Source: xStation5

Gold

• Gold experiences strong gains this week, similarly to silver. Gold managed to break above the $1820 handle, marking the upper limit of trading range

• Copper-to-gold ratio, compared to 10-year US yields, suggests the market is either overly optimistic or gold is undervalued. Given expansive monetary policy in the United States one could expect copper-to-gold ratio to adjust to lower yields

• ETFs has been buying gold for almost 3 weeks without a break already. ETF gold holdings increased 27% this year

Copper-to-gold ratio and 10-year US yields disconnected. Situation may hint at gold being undervalued. Source: Bloomberg

Oil

• US presidential elections are very important for the oil market

• Should Joe Biden defeat Donald Trump in elections, agreement with Iran could be restored. This could mean as much as 2 mbpd of production returning to market

• Some polls show Biden with double-digit advantage over Trump but it is too soon to call winner yet

• Upbeat moods on the global markets support gains on the oil market. WTI broke above key resistance. Brent still trades below its resistance

• EIA hints at demand recovery quicker than previously expected. EIA expects demand to return to pre-pandemic levels in August 2021

WTI breaks above the resistance at $41. Speculative positioning is relatively high but has not reached an extremely overbought level. Source: xStation5

Joe Biden has a big margin over Trump in recent polls. Source: The New York Times