Weekly Update (Week of 2/27/23)

   

 Weekly Update: February 27, 2023

Trading Portfolio: (It is a link to Google Sheets)

General Major News/Economic Developments

• Russia turns to the Chinese Yuan in an effort to ditch the Dollar. The move deepens the ties between the two countries that have long been rivals for regional dominance. 
• US unemployment fell to a 53-year low. The economy shows strength in early 2023.
• Goldman struggling with the Fintech and the consumer banking side of the business.
• Chinese chipmakers that receive US funds banned from expanding in China for a decade.

Metals

Developments/News

The trade I placed last week on Gold Futures ended up getting stopped out for a 3pt loss at $1840. You can track the trades from the link below the header!

Gold

The price action in Gold continues to show small signs of strength that seem to be getting sold into. 

My long-term view on Gold still stands as the dominant idea for the commodity: Dollar value may be cooling, but with rate hike fears overhead gold is susceptible to a drop. Analysts are making predictions that if inflation continues to rise, gold might fall to $1730-$1740.

Another bearish factor bringing down gold is the fact that a lot of ETFs are liquidating their holdings.

Silver

Silver rejected the $22 level we were watching last week very cleanly. There was a trade there, just didn't set up exactly as I would have liked. 

I believe the main catalyst for silver will be the demand for solar energy products in 2023. While rate hikes continue to make precious metals cheaper and cheaper, they should also make the cost of sustainable energies and new technologies lower, spurring a growth cycle in that area. That should, in theory, spur a long-term rise in silver prices as it becomes more commonly used. The long-term trade here will require patience but will prove lucrative in the long run. 

Copper

Copper continues to hold its medium-term technical trend. The price is basically where we left it last week.

Gold producer Anglo Asian guided numbers down for gold as Gilar and Zafar copper mines opened. The company seems to be pivoting focus which is indicative of the long-term world view of this metal against the more popular ones.

Once again, no significant fundamental updates on copper for this week, but the world view remains bullish on factors of utility and supply.

Agriculture

Developments/News

Coffee

As March approaches, Coffee futures roll over to focus on the May contracts. A long-term investor will typically close out their position in March contracts and open a new one in May contracts.

Coffee prices closed lower on Monday due to eased flooding concerns in Brazil's largest arabica growing region, Minas Gerais. However, signs of tighter coffee inventories are providing support for prices as ICE arabica coffee inventories fell to a 2-month low, and global coffee exports have decreased. Robusta prices are supported by a forecasted record deficit in the global 2023/24 robusta coffee market due to damage from excessive rainfall in Indonesia. The USDA has also cut its global coffee production and ending stock estimates for 2022/23.

ICE Arabica inventories down to 790k bags

U.S Jan green coffee inventories fell to 6.26m bags

Cocoa

On the technical side, the risk-reward for a cocoa short is quite attractive. I think the plan for me is to wait for a squeeze up and over the last local high of 2832 and take the short there. Else, I'll wait for some sort of stalling and monitor the volume and news on the commodity. I will likely alert this one in my Twitter (@commodcompass) sometime this week or next.

Nigerian cocoa exports have declined and supply from the Ivory Coast has dwindled, sending Cocoa prices up today (2/28). Ivory Coast farmers sent less cocoa to exporters for 2022/23 years.

It is interesting to note that a number of cocoa exporters are close to defaulting on their contracts due to a lack of supply. December numbers reflected unfavorable weather conditions and disease hampering yields and presenting an overall decline in cocoa production. This should be bullish for cocoa prices and, given the right setup, present a speculative long trade opportunity. 

However, tepid cocoa demand globally is a negative factor counteracting the typical bullish pressure from supply shortages. 

Wheat

Wheat attempted a turnaround today (2/27), but prices overall ended up down 3.5 cents. The price overall ended up at a local low and the bottom of the broadening cone we've been watching. The overall macro story remains the same - Russia/Ukraine conflicts continue to add pressure, but other countries stepping in is helping to alleviate it.

In the wheat market, there are two main types of contracts that are traded: futures contracts and cash contracts. Futures contracts allow traders to buy or sell wheat at a specified price at a specific point in the future, while cash contracts involve the physical delivery of the wheat.

Wheat futures are traded on exchanges such as the Chicago Board of Trade (CBOT), the Kansas City Board of Trade (KCBT), and the Minneapolis Grain Exchange (MGEX). These exchanges set the prices for wheat contracts based on supply and demand factors.

Traders use various strategies to trade wheat, including technical analysis and fundamental analysis. Technical analysis involves using charts and technical indicators to analyze the price movements of wheat and identify trends, while fundamental analysis involves analyzing economic, political, and other macro factors that can affect the wheat market.

Energy

Developments/News

Crude Oil (Brent)

Brent came right out of the demand zone marked in green. Did not trade that but in hindsight was good. The setup was clearer in crude shown below. 

The consensus is for Wednesday's weekly EIA crude inventories to climb +1.9 million bbl. Indian buyers of Russian oil are struggling to obtain the crude as onerous demands from financiers wary of breaching Western sanctions are making it hard for Indian buyers to secure financing for their purchases of Russian crude. 

By the looks of my week-to-week updates, sentiment on Chinese recovery is hardly ever stagnant. I've seen everything from optimism to pessimism and now "uneven recovery". I will cease taking note of this sentiment unless something substantial comes out. Increased crude exports from Libya bode lower prices ahead, posting a 2.5% increase m/m. OPEC looks to keep production steady - I don't see much changing any time soon.

Crude Oil (WTI)

First, the supply zone gave great trade, and now the demand zone. Both have been marked for weeks. 

The macro story remains the same as Brent's.

Liquified Natural Gas

Short-term pop as this nears a very low level. The macro view is not in favor of higher natural gas prices as winters get warmer and warmer and stoves go electric, the commodity looks like it is becoming one of the past.

Footnotes

Sources include Thinkorswim, Tradingview, Barchart, Wall Street Journal, Financial Times and Metals Daily