Commodity Wrap - Gold, Coffee (31.05.2022)

Gold:

• Gold has scored a decline this month, although the last few days have seen a slight improvement in sentiment
• Gold continues to be in a powerful divergence with yields, which are illustrated on the chart by the price of TNOTE bonds
• Expectations for interest rate hikes in the US are stabilizing, with 2.5% expected this year, implying a neutral level for interest rates
• Stabilizing expectations for interest rates and the recent drop in inflation expectations could mean TNOTE could rebound and support current or higher prices for gold
• Additionally, we see that the copper to gold price ratio does not justify such high yields, which could support gold at current or higher levels in the medium term
• ETFs are selling off gold, but it is not an excessive process. However, speculators are closing long positions and opening short positions on gold

Gold has lost value this month and remains in a huge divergence with TNOTE. Source: xStation5

Contract speculators are negative on gold. ETFs are selling off gold, but it is not an excessive process. Source: xStation5

The copper-to-gold ratio remains in consolidation and no longer justifies such high yield levels, which could provide important support for gold in the medium to long term. Source: Bloomberg

Coffee:

• Coffee stocks are still at very low levels, but have likely reached their cyclical low
• China's return to normality could improve the supply chain situation around the world, which could reduce upward pressure on coffee prices
• On the other hand, coffee stocks in Brazil itself are very low, and the expensive Brazilian real suggests a desire to replenish stocks and reduce exports
• The recent upward surge in coffee was triggered by frosts, but the weather is not expected to worsen later, especially in June when the flowering of coffee trees in Brazil takes place
• Rabobank expects prices to fall below $2 per pound by the end of this year due to expected good weather
• Weather patterns are not expected to be as extreme as they were last year

Coffee stocks remain low but have likely reached their peak. Source: Bloomberg

Coffee remains relatively high, but without worsening weather, the current upward trend may not continue. Additionally, there are no global coffee transportation issues, and recent restrictions in China will likely lead to limited demand growth in that country. Source: xStation5