Week In Review: Grains & Platinum Surge; Gold Gains Despite Jobs Data; Copper Sinks On China Default

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by: Hard Assets Investor

by Sumit Roy

Precious metals and grains rose, while copper lagged.

Fading geopolitical concerns and rising optimism about the U.S. economy sent gold plunging on Friday, but for the week as a whole, the yellow metal actually rose. There were even stronger gains in platinum, palladium and the grain complex, while copper was a notable underperformer. Meanwhile, stocks jumped to fresh record highs. The S&P 500 gained a little less than 1 percent on the week, taking its year-to-date gain up to 1.4 percent.

Macroeconomic Highlights
The big story early in the week was the conflict between Russia and Ukraine. However, concerns that the two countries could go to war eased on Tuesday after relatively conciliatory comments by Russian President Vladimir Putin.

In terms of economic data, the biggest headline was the jobs report in the U.S. The Bureau of Labor Statistics reported that employers added 175K jobs in February, better than the 149K economists were expecting. At the same time, noted in a separate survey from the BLS, the unemployment rate edged a bit higher, from 6.6 to 6.7 percent. Overall, traders were encouraged by the data.

On the bearish side, ISM reported that its non-manufacturing index slipped from 54 to 51.6 in February, the lowest level in four years. However, traders shrugged off the news, attributing the decline to adverse weather conditions.

Finally, in Europe, the ECB kept its benchmark overnight interest rate steady at a record-low 0.25 percent, as expected. The central bank lifted its 2014 economic growth forecast for the eurozone to 1.2 percent; however, ECB President Mario Draghi cautioned that risks to the economic outlook were on the downside.

Commodity Wrap

Commodity Weekly Return YTD Return
Wheat 8.35% 7.27%
Palladium 5.05% 8.91%
Corn 5.02% 13.98%
Platinum 2.43% 8.20%
Soybeans 2.19% 10.05%
Gold 0.90% 11.01%
WTI 0.19% 4.44%
Brent -0.06% -1.62%
Natural Gas -0.22% 8.75%
Silver -1.51% 7.40%
Copper -2.78% -7.35%
Click to enlarge
  • Platinum and palladium surged this week after talks to end a dispute between workers and top producers in South Africa fell apart. The rally in the duo lent some support to gold, which managed to eke out a weekly gain despite selling off on Friday due to the U.S. jobs report. However, silver continued to lag and ended the week lower.

    We do not see either the strength in the U.S. economy or the easing of concerns in Eastern Europe as derailing the uptrend in gold, and foresee prices rising above $1,400 in the coming weeks and months (see Ukraine & Russia Don't Matter For Gold, Buy On Pullbacks).

    From a technical perspective, palladium looks even more compelling, as it has just broken above its key resistance level near $770.

GOLD

SILVER

PLATINUM

PALLADIUM

  • Crude oil spiked, but ultimately ended the week close to unchanged. The Eastern European conflict injected some volatility into prices, but supply and demand remained unaffected by the developments in the region.

    We are more concerned about the situation in Libya. If unrest in that country wanes and production subsequently increases, that could lead to a steep $10-15 decline in prices in the near term (see Libya's Output Biggest Downside Risk For Oil Prices).

    Neither Brent nor WTI looks particularly attractive from a technical perspective, and thus we opt to stay on the sidelines until a more compelling setup emerges.

BRENT

WTI

  • Corn and soybeans rose to six-month highs, while wheat rallied to a three-month high this week. The crisis in Ukraine has spurred supply worries as the country is the third-largest corn exporter and the sixth-largest wheat exporter. Analysts also pointed to strong export sales out of the U.S. as suggestive of strong demand.

    "The latest data shows U.S. soybean exports remain very strong and that there is a lack of significant cancellation by Chinese importers, something that is often observed as the South American crop comes online," said Luke Mathews, a commodities strategist at Commonwealth Bank of Australia.

CORN

SOYBEANS

WHEAT

  • Copper plummeted after China saw its first domestic bond default in modern history. A solar company, Shanghai Solar Energy Science & Technology Co., missed paying interest on its bonds, and analysts say that more defaults are to come.

    As the world's largest consumer of copper, accounting for 40 percent of global demand, developments in China have a significant impact on the red metal.

    Prices for copper have been underperforming throughout the year, and may continue to fall toward long-term support near $3/lb.

COPPER

  • In sharp contrast to recent weeks of intense volatility, natural gas finished this week close to flat. Cold winter weather continues to push inventories lower, and stockpiles may fall to an 11-year low in the coming days (see NatGas Tries To Form Bottom; Inventories Poised To Hit 11-Year Low Next Week).

    We still see upside risks as outweighing downside risks; thus, we remain buyers on dips below $4.50/mmbtu.

NATURAL GAS

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