Commodity Kindles as Trade Ease Surfaces; Is the Rally Sustainable or Is it on a Weak Footing?

  • Dec 23, 2019 AEDT
  • Team Kalkine
Commodity Kindles as Trade Ease Surfaces; Is the Rally Sustainable or Is it on a Weak Footing?

The commodity market is back in action as the trade terms between the United States, and China is taking surface, with China rolling-off tariff on pork and soybean products, and the United States reciprocating to remove USD 160 billion and put an ease on tariff dispute to fan the commodity demand.

The falling interest rate environment coupled with depreciating global currencies is further fuelling the Consumer Price Index across the globe, which in a loop, is providing support to commodity prices.

Global Inflation (Source: OECD Data)

Commodity prices hold direct correlation with inflation, and the depreciating global currencies, which is increasing the CPI across the globe, is supporting the commodity prices.

To know the correlation of commodities with other indices, Please Refer: Is P/E Ratio A Good Valuation Metric To Value A Resource Stock?

Apart from that, the low-interest-rate environment is diverting investors towards risker asset amid better risk-adjusted returns.

Long-term Interest Rate (Source: OECD Data)

The S&P 500, which is typically used to track the performance of the overall global equity market is making continuous record highs, as the large chunk of global investors putting-in money into the riskier assets.

The central banks maintaining a dovish stance and has seen a direct impact on the major indices such as S&P 500, keeping the rally live.

Energy market typically reflects the overall demand for commodities except for precious metals, whose price is influenced by high investment from large investors such as gold-backed ETFs and Central Banks and during periods of high uncertainty - geopolitical tension and gloomy economic conditions.

In the status quo, the demand for energy is edging higher across both the developing and developed economies, as captured by the U.S. Energy Information Administration under its reference case forecast on energy markets.

To Know More, Do Read: EIA Modelled Reference Case Forecast; Non-OECD Nations To Witness Higher Energy Consumption

The higher demand for energy across the globe is supporting the overall commodity outlook, which is now pulling-up commodity prices.

Geopolitical Events Supporting Commodities

Oil

OPEC recently conducted its 177th Annual Meeting, and Saudi Arabia, which chairs the meet managed to persuade the other members of the cartel to slash the OPEC oil production by 0.5 million barrels a day. The oil kingpin managed to sway Russia as well to join the decision amidst of the Aramco IPO events, which turned the eyes of the investing community towards oil prices.

To Know More, Do Read: Aramco IPO to Trade Tomorrow on the Saudi Exchange- Big Day For Tadawul

While oil prices took slight support from the event, the surmounting production in the United States remains a potential risk for oil prices.

Crude Oil on Charts

LCO Weekly Chart (Source: Thomson Reuters)

On the weekly chart, crude oil prices currently trading in the supply zone as it is trading above multiple exponential moving averages. The prices are currently trading with a positive crossover in 9- and 21-days exponential moving averages, which reflect that the prices could recover in the short-term.

The short-term moving averages such as 9- and 21-days is below the long-term moving averages such as 100- and 200-days, which further reflects the buying interest from the bulls.

LCO Daily Chart (Source: Thomson Reuters)

On applying the Guppy Multiple Moving Average (or GMMA) on the daily chart, it could be seen that the short-term moving averages are trading well above the long-term moving averages with a slight increase in the spread between them, which further reflects that the up-trend is gaining momentum.

The short-term moving averages crossed the long-term moving averages recently, and currently, crude oil is moving in the demand zone.

Copper

Copper prices are again inching up in the market over the projections of change in the EV trends for the coming year and export bans from Indonesia. Copper, which started spiking post the workers at the BHP Group Limited (ASX: BHP)-owned Escondida mine in Chile joined the public protests, has now reached a peak of USD 2.834 (Comex Copper Futures) (as on 20 December 2019).

To Know More, Do Read: ICSG Slashes Supply and Demand Outlook for Copper; BHP’s Escondida Disruption Propels ASX Copper Stocks

HGc1 Daily Chart (Source: Thomson Reuters)

On applying multiple exponential averages (Guppy Multiple Moving Averages) on the daily chart of Comex copper, it could be seen that the short-term multiple exponential averages have crossed the long-term moving averages from below, and the spread between them is increasing, which reflects that the up-trend is gaining momentum in copper.

Gold

Gold prices typically move opposite to the riskier assets; however, being a commodity, gold is also supported by higher inflation and lower interest rate. Currently, gold prices are surging in the market supported by higher cash influx from gold-backed ETFs and Central banks, which is supporting the ASX gold mining companies.

To Know More, Do Read: ASX Gold Stocks- A Healthy Buy for Profits?

Crude and Copper Futures- Correlated with Gold Spot (Source: Thomson Reuters)

On loading the daily charts of copper, gold spot, and crude on a single chart, it could be noticed that the major three commodities are gaining upside momentum, and the correlation between them is on the surge, which reflects that the rise in one commodity is also supporting the price of others.

Presently, a unit dollar change in the gold spot is pushing the prices of copper up by 0.388 dollars, and vice-versa. Likewise, a unit dollar change in gold spot is pushing the prices of crude up by 0.129 dollars, and vice-versa.


Disclaimer

This website is a service of Kalkine Media Pty. Ltd. A.C.N. 629 651 672. The website has been prepared for informational purposes only and is not intended to be used as a complete source of information on any particular company. Kalkine Media does not in any way endorse or recommend individuals, products or services that may be discussed on this site. Our publications are NOT a solicitation or recommendation to buy, sell or hold. We are neither licensed nor qualified to provide investment advice.

 

All pictures are copyright to their respective owner(s).Kalkinemedia.com does not claim ownership of any of the pictures displayed on this website unless stated otherwise. Some of the images used on this website are taken from the web and are believed to be in public domain. We have used reasonable efforts to accredit the source (public domain/CC0 status) to where it was found and indicated it below the image.

 

There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.

Are you wondering if the year 2020 might not have taken the right start? Dividend stocks could be the answer to that question.

As interest rates in Australia are already at record low levels, find out which dividend stocks are viewed as the most attractive investment opportunity in the current scenario in our report.

CLICK HERE FOR YOUR FREE REPORT!
   
x
We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK