Weekly Update (Week of 3/6/23)
Weekly Update: February 27, 2023
Trading Portfolio: (It is a link to Google Sheets)
Find a decent amount of metals information this week!
General Major News/Economic Developments
- China soft GDP target for 2023 is about 5% with there being 3% growth in 2022
Metals
Developments/News
Gold
The small signs of strength in price action on the 100-day moving average (green) for gold proved to be short-term support for the precious metal, up about 35 points from the local lows
With numbers reported, Turkey maintained its status as the world's largest gold buyer in the month of January, clocking in 23 tonnes. It will be interesting to see how this rate changes as a result of the Turkey earthquake (2/9/23), as they announce temporary import suspensions. Turkey citizens seem to be using gold as a hedge against inflation and currency pressures, indicating distrust in their country's currency.
The long term plan is to accumulate a medium sized stake in a gold short on the way up, but the right setup has not presented itself yet.
Silver
Last week, we didn't get our trade, but this week I've sent out an order for 1 contract short of /SIL at $21.745 with a stop loss over $22.08.
$0.005 translates to $5 in one contract for /SIL. this equates to about $335 in risk plus $5 in trading costs both ways.
I came across an article written 3/6 talking about the idea that silver mines will be bought up by automakers (especially electric ones). They then projected silver to reach $125 per ounce which is an egregious return on the current $21.75/oz price. The idea is that these automakers would then control a large chunk of the silver supply which will aid them in cutting costs, raising barriers to entry, and controlling market prices/supply.
The Silver Institute is projecting a 200 million-ounce deficit this year. The incentive for suppliers to enter the market is immense and its all a question of who will take controlling stakes early. Forecasters are aiming for $30/oz this year with $125 in the long-term horizon. Silver is not simply a flight to safety investment, it is widely applicable in a number of next-generation technologies and products.
Annualized returns, similar to those found in the Gold section, can be found in the chart above. Generally speaking, silver seems to experience more volatility than gold pointing to the idea that it can be utilized to capture more value out of larger moves in precious metals.
Copper
Narrowly missed the fill for a copper short by $0.004 at the supply zone marked in red. Overall, we continue to follow the medium-term trend upward.
Goldman Sachs is actually warning carmakers against buying miners to control supply and cut costs, stating "It always ends in tears". They cite that managing and getting involved in mining projects in places like Southern Africa that are mineral-rich requires vastly different expertise than in car production. They suggest that hedging is a better alternative than buying stakes.
Agriculture
Developments/News
Coffee
Coffee futures seem to be hovering very much in the middle of two significant supply/demand zones. Thus a trade does not seem viable from a risk/reward perspective. Will wait to reevaluate at one of these two levels. There are probably smaller time frame zones, but I am more interested in daily zones for commodities as they are less often day-traded and more often long-term position traded.
Strength in Brazillian Reals (currency) supports coffee prices as it rallied to a 1-week high against the dollar today (3/6). Stronger real also discourages exports from Brazil's coffee producers. This will probably squeeze prices a good bit higher.
Volcafe (a coffee trading house) projects that 2023/24 Robusta markets would experience a record deficit of 5.6m bags as Indonesia expects production to fall by 9m bags due to excessive rainfall across its growing regions.
Honduras Feb exports up 32% y/y to 863k bags
Brazil Jan green coffee exports down -18.5% to 2.5m bags
ICE Arabica inventories down further to 774k bags
Cocoa
The 2832 short provided a 48-point zipper to the downside with only 18 points of risk. Great trade there but now showing a bit of strength so will let it go around 2784. Check sheet for entries and exits.
Not much else has changed since the macro overview I sent out last week. Forecasters are expecting sideways chop for the time being.
Wheat
Wheat continues to plunge lower, breaking the broadening formation for the time being. Would still not be surprised by a reversal at these lows. There is a demand zone at $638 to look out for and if reached will definitely initiate a long position on my book.
Poland and Ukraine agreed to terms for Ukranian grain shipments to export through Poland ports. The deal goes into effect on 3/8. Ukraine, one of the world's largest wheat producers, will benefit greatly as will the overall wheat supply in the market.
Energy
Developments/News
Crude Oil (Brent)
The demand zone trade earlier looks even better now and I would be trailing it with a stop loss, targeting the supply zone around $92. I think Oil experiences a short-term rally here, especially if this can crack over its 100-day moving average. The breakout of the tightening trend and the strength given from the demand zone should be enough steam to propel this upward.
The softer-than-expected GDP report from China expresses demand concerns. They did not announce any major stimulus either.
Russian crude will likely continue to take a beating as Western sanctions make it difficult to secure financing for oil purchases from Russia.
Crude Oil (WTI)
WTI Crude prices reapproach the supply zone that worked so beautifully a few weeks ago. The main watch is the 100-day moving average.
The macro story remains the same as Brent's.
Liquified Natural Gas
Once again, weak. I don't even think this is worth a trade/short. Feels like a microcap.
Footnotes
Sources include Thinkorswim, Tradingview, Barchart, Wall Street Journal, Financial Times and Metals Daily. Reuters provided some nice annualized return charts as well.
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