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Commodities Corner: Glittering Prize

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2023-04-02

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Gold ended the quarter with its strongest finish in almost three years, mainly thanks to the banking crisis, as the metal surged past $US2,000 an ounce twice in the final fortnight of March.

Gold’s claim to be a safe haven in times of tensions in financial markets or economies returned in late March as bond yields and the US dollar moved.

Inflation returned to remind people of its presence on the last day of the quarter on Friday when data the Federal Reserve's preferred inflation measure rose less than expected in February.

That should help sentiment as trading starts in the new quarter today.

Friday saw Comex gold for June delivery close down $US11.50 to settle at US$1,986.20 an ounce in New York.

That was up 8.2% for the month and 9% for the quarter — the best performance for each since June-July 2023.

Comex silver saw significant gains in March, rallying more than 13%, its best monthly performance since December 2020 as investors chased in in the middle of the US bank crisis.

May silver futures on Comex settled Friday at $US24.235 an ounce, up 1% on the day and nearly 3.8% for the week.

That sharp rise lifted the quarterly gain back into the green - at just 0.23% - hardly ground-breaking.

The driver on Friday was the core personal consumption index reading for February rose an annual rate of 4.6%, under forecasts for a 4.7% rise and down from 4.7% in February,

The smaller than expected rise may offer the Fed some comfort that its interest-rate increases have been effective at slowing the economy.

US bond yields fell following the release of the data with the yield on the US 10-year Treasury was last seen down 4.5 basis points to 4.507%, while the two-year note was at 4.122%, down 1.1 basis points.

However the dollar rose, making gold and most commodities a little more expensive for global buyers. The ICE dollar index was up 0.42 points to 102.57.

That saw the Aussie dollar fall back under 67 US cents on Friday to end the quarter at 68.86 US cents. The Aussie dollar was up on the week, down 1.2% for the month and down nearly 2% for the year to date.

Iron ore ended March in Singapore at $US125.20 a tonne for 62% Fe fines, up from $US113.87 at the end of last December. It also rose in March from $US122.59 a tonne at the end of February and over the past week.

Copper rose 7.8% over the quarter, closing Friday at $US4.19 a pound on Comex.

There was a 40% plus drop in Europe's natural gas prices in the quarter and 12% and 4% respective tumbles in wheat and corn.

Newcastle thermal coal prices were down by more than 50% in quarter and are now down around $US170 to $US200 a tonne, depending on the month for delivery.

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On the other hand, the first three months of 2023 saw oil slide as the ripples from the invasion of Ukraine by Russian forces finally petered out and China’s re-opening from harsh Covid lockdowns did not see the forecast surge in demand.

Today it’s the latest OPEC+ group meeting, with little change to quotas expected as prices recover from the March selloff amid fears over the health of the banking sector.

RBC Capital Markets said in a note on Friday that, "With oil prices rebounding from the sharp macro selloff and with physical contagion fears from the banking crisis seemingly subsiding, we envision a fairly swift reaffirmation of last October 2 mb/d production cut decision; potentially with added language that the group will remain proactive and monitor the situation closely.

West Texas Intermediate (WTI) crude oil rose to the highest in three weeks on Friday after a key measure US inflation rose less than expected ahead while supply from Iraq's Kurdistan region remain off line.

WTI crude for May delivery closed 5.72% over the quarter and Brent shed 7.15% $US1.30 to $US75.67 per barrel, the highest since March 10. May Brent crude, the global benchmark, was last seen up $U2.45 to $US79.77.

WTI lost 5.7% in the first quarter and was up more than 9% last week, which cut the fall for March to just over 5%.

Brent fell more than 7%. For last week Brent rose just over 7% which halved March’s loss to around 7%.

US natural gas futures slumped 47% in the first quarter.

The core personal consumption expenditure index. the Federal Reserve's preferred inflation measure, rose 4.6% in February, under consensus expectations of 4.7% and down from 4.7% in February.

"With oil prices rebounding from the sharp macro sell off and with physical contagion fears from the banking crisis seemingly subsiding, we envision a fairly swift reaffirmation of the October 2 mb/d production cut decision; potentially with added language that the group will remain proactive and monitor the situation closely.

"The disruption of 450 kb/d of Kurdish exports - following the international arbitration court ruling that Baghdad has sole control of the northern pipeline that transports crude to the Turkish port of Ceyhan - will also likely bolster the monitoring committee's conviction that no downward adjustment is warranted at this time," Helima Croft, Head of Global Commodity Strategy and MENA Research at RBC Capital Markets, wrote in a note on Friday.

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The number of oil rigs operating in the US fell by one last week, according to energy-services firm Baker Hughes’ weekly survey.

The count fell to 592. A year earlier, the US had 533 oil rigs in operation.

Oil and gas rigs in the US dropped by three to 755, with the count for gas dipping by two to 160 and miscellaneous rigs remaining unchanged at three. That compares to 673 rigs (gas and oil) operating in the US this time in 2022.

Producers including Norway's DNO ASA, Gulf Keystone Petroleum and HKN Energy began shutting down wells in the semi-autonomous Kurdistan region in northern Iraq after losing access to a vital pipeline, ANZ reported Friday, with supplies of around 450,000 barrels of oil a day impacted.

On Wednesday, the Energy Information Administration reported that commercial crude stockpiles in the US, excluding the strategic petroleum reserve, declined by 7.5 million barrels last week, against expectations for an increase, as imports and petroleum inventories fell.

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