Commodity Wrap - Zinc, Gold, Natural Gas, Wheat

Zinc

• Zinc inventories on LME declined 55% this year
• Positive change in terms of speculative positioning
• Data from International Lead and Zinc Study Group hint that there was a deficit of 106k tonnes during January-July period
• LME suggests that this year will be marked with deficit on the zinc market. 2020 should more or less balanced while surplus should return in 2021
• The situation does not look too good for the commodity when we take a look at the demand side. Stimulative measures introduced by the Chinese government should have a positive impact on the construction sector but automotive sector could experience first decline in sales since the financial crisis
• Zinc is trading near the midpoint of the first half’s downward move. The metal is behaving similarly to copper

Speculative positioning on zinc looks bullish, what can be ascribed to a major decline in inventories. Source: Bloomberg, Orchid Research

Zinc experienced solid price gains over the past few weeks, thanks to declining inventories. In spite of the fact that zinc inventories decline like nickel inventories, zinc price is behaving more like a copper price. Source: xStation5

Gold:

• Another failed attempt of breaking out of the bearish triangle pattern
• Price managed to stay within the Overbalance structure. Breakout could take place somewhere in mid-November
• Diwali festival in India does not change demand situation on the gold market. Jewellers expected smaller demand amid high prices of precious metal
• Gold will react to the FOMC decision (Wednesday, 6:00 pm GMT)
• Speculative position flashes potential contrarian signal as number of short positions is extremely low

ETF holdings of gold remain high but growth has moderated recently. On the other hand, the number of short positions is extremely low, what could be a contrarian signal over the short-term. Source: Bloomberg

Natural Gas:

• The latest report regarding US gas stockpiles showed a level has already risen above its 5Y average, that’s a big difference compared to the previous years
• NOAA points to lower temperature between 2 and 6 November which suggests a higher demand for this commodity
• Fundamental factors do not seem to be as good as they were in the past year
• A SHS pattern seen in the chart in October

The latest report regarding US gas stockpiles showed a level has already risen above its 5Y average. On top of that, weather forecasts suggest lower temperature at the beginning of the next month. Source: EIA

There are only tiny odds to see a similar rally what we saw in 2018 given where the level of stocks stands. However, a 50c increase during November/December per MMBTU could be possible. Source: xStation5

Wheat:

• There has been a significant delay in a wheat planting in European countries due to difficulties in harvesting other crops like corn
• AgResource signals wheat prices could rise 10-15% in Europie, a peak could be reached between November and December
• A winter wheat planting season in the US has been in line with its 5Y average so far, on the other hand, the latest Bloomberg research suggests the lowest acreage sown for almost 110 years
• A fall in the quality of winter wheat crops in the US still hovers around the 5Y average

Compared to the previous year we’ve seen a decline in the quality of winter wheat crops. Source: Bloomberg

Global wheat stocks remain gargantuan and it may limit any long-lasting price increases. Source: xStation5