Seasonality Points Up For Gold And Bonds

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Includes: CORN, CUT, FXE, FXY, GLD, NIB, PALL, PPLT, SBB, SLV, SPY, TLT, UGA, UNG, USO, WEAT
by: Movement Capital
Summary

Energies: WTI's twelve-month momentum is about to turn negative; seasonality will be a headwind for natural gas and WTI for the rest of 2017.

Financials: The 30-year bond typically does well in the summer, EUR/USD twelve-month momentum just turned positive, and the S&P has closely tracked its 5-year seasonal average YTD.

Grains: Wheat is in heavy contango, and soybean oil seasonality over the next few months is negative.

Metals: Palladium is the lone precious metal in backwardation, and gold typically does well between July and September as equities tend to get more volatile.

Softs: June has been a huge month for both cocoa and sugar over the past two decades. Lumber has retraced most of its YTD gains.

This is my eighth weekly update that outlines seasonal trends and the term structure of futures contracts. All of the below data and graphs come from my Commodity Seasonality website. The website is completely free, and I use Seeking Alpha as my sole outlet for weekly recap articles. I break down the updates by asset class, so let's get started.

Energies

Here's an interesting lesson in base effects. This January, WTI's (USO) twelve-month price momentum was ~70%. It's now about to go negative. The early months of 2016 have disappeared from the momentum calculation, and WTI is now basically flat over the past year.

WTI has had quite the volatile year. Here's a view of historical seasonality. June is the last significantly positive month for the commodity, and then the seasonal trend is down in Q3 and Q4.

Natural gas (UNG) exhibits similar seasonality. Here is the average monthly performance for roll-adjusted nat gas futures.

Financials

The S&P (SPY) has almost exactly matched its 5-year performance average for this time of year.

The Japanese yen's (FXY) twelve-month momentum has turned negative. This means most long-term trend followers will be biased to the short side in JPY/USD.

In contrast, EUR/USD (FXE) now has positive twelve-month momentum.

The 30-year bond (TLT) typically has a bid during the summer months. Most safe haven assets, including gold and the yen, typically do well at some point in the summer as equity volatility increases.

Grains

Corn (CORN) futures exhibit a mild amount of negative seasonality over the next two months.

Soybean oil has had a rough start to the year, and the seasonal outlook from here only gets worse.

Wheat (WEAT) futures are firmly in contango.

Most people get exposure to wheat (or any commodity) by buying the front-month futures contract. This means the position has to be rolled each month to a further out contract. If further out contracts are priced higher, the futures curve is said to be in contango. If further out contracts are priced lower, the curve is said to be in backwardation. Contango between wheat futures that expire in July 2017 (front month) and December 2017 is currently ~8.5%. Think of this as a headwind for future returns.

Metals

Silver (SLV) has tracked its ten-year seasonal average fairly well in 2017. Going forward, the commodity typically chops around the rest of the year. It should be noted that silver has been particularly weak in November and December over the past five years.

Platinum's (PPLT) two best months of the year are in the rear-view mirror.

It's been interesting to see palladium (PALL) actually go into (very mild) backwardation. Every other metals contract I monitor is in contango, as higher short-term rates have increased the cost of carry.

Gold (GLD) has historically had positive performance between July and September.

Soft Commodities

On average, June has been the best month of the year for cocoa (NIB) futures since 1997.

Orange juice futures now have negative twelve-month momentum and are about to dip back into contango.

Lumber (CUT) has retraced the majority of its YTD gains.

June has been a monster month for sugar (SBB) futures over the past two decades.

Conclusion

That wraps up the coverage of individual contracts. I'll close with my most important charts.

First, here are the average 20-year average monthly performance numbers for June. The best-performing contracts have been agricultural commodities like oats and sugar. The worst performer has been palladium.

Here's a look at the current amount of contango or backwardation for each contract. As a reminder, I compare the contract with the highest open interest to the contract with the third-highest open interest to generate the below numbers. RBOB gasoline (UGA), oats, and lumber are in the highest degree of backwardation, and corn, natural gas, and wheat exhibit the most contango.

I hope you've found this article to be useful. It's meant to cut down on your research time and save you some money.

Follow me to receive my weekly seasonality updates on Seeking Alpha. Let me know if you have any questions in the comments below.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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