Commodity Report #26

Last week the broader commodity market was as good as unchanged. In more detail, you could say the Energy sector was dragged down by a collapse in NatGas prices. Meanwhile, the many components of the Grains and Metals sector had respectable breakouts. Softs were also up a lot, besides of Sugar and Cotton which are still at the edge of a correction. But because of a potential La Nina and huge demand, it could take some additional weeks to play out. The digital Millenial Gold, which is in my opinion Bitcoin was as good as unchanged.

Inflation expectations surged last week, based on the inflation headlines. Yields were a bit higher — but not by a lot. That combo helped the Realyield to fall further — this of course helped (once again) Precious Metals and lead to the outbreak in Gold and Silver.

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Here is my latest playbook:

Gold finally had a breakout moment!

The breakout was also confirmed on the weekly chart, which was the trigger for me. A Higher Gold price should be ahead — combined with higher inflation rates until February, based on low year-to-year comparisons. BUT that’s not all you need to know, more in the Member Report “Why I’m buying Gold right now, but am not too optimistic” tomorrow

Putin a man of his word — but also one of the greatest strategists?

Russian President Vladimir Putin promised to accelerate Gas flows into Europe via Gazprom. Last week he finally delivered on his promises. Gas flows picked up and at the same time NatGas prices started to tumble (as I predicted in the Member report two weeks ago)

At the same time, he stationed troops in front of the Ukraine border. IMO the European Union hasn’t got the best hand here. Putin could invade Ukraine and the resistance from Europe wouldn’t be immense because Russia could use its strategic leverage as THE major NatGas supplier. Sad but well played…

Grains are going to the moon — I keep buying the dip here

Grains also saw another major breakout moment in the last trading week. I had the perfect timing with publishing the Member Report on Tuesday (you can find the report here)

The WASDE report on Tuesday wasn’t that bullish overall but during the week we also received strong demand from countries like Canada and China for Soybeans and Corn.

Commodity prices are high — but CAPEX isn’t

Usually higher prices lead to a higher investment in this space — which again leads to lower prices. That’s the typical cycle. The current problem is that there isn’t much CAPEX planned especially by oil companies. The large earnings are given directly to shareholders or are used to pay back debt. The current lag was of course made much worse by the focus on green transformation.

Something to keep in mind!

US Dollar Update — heading higher

The USD broke out of its consolidation and is heading higher.

Nevertheless, it’s time for me to change my perspective. From here on I expect a stronger Euro as well as a stronger Aussie against the USD. (based on positioning as well as seasonality)

Elsewhere In The Macro World

Inflation is surging — at least till February 2022

The inflation comparisons between November and February are very easy to beat — so inflation will surge further in these months. Nevertheless, inflation will peak in Q1 22 — something to keep in mind and a reason to look out for buying opportunities in bonds.

Moreover, market participants seem to view this inflationary environment still as transitory. For example, the two-year breakeven — which represents the market’s view on the annual pace of inflation over the next two years — is currently 3.3%, while the 10-year rate is 2.7%. That suggests that traders expect price pressures to abate over time.

This week look out for:

  • Chinese Retail Sales data on Monday
  • US Retail Sales data on Tuesday
  • Surging COVID cases and the potential of renewed restrictions throughout Europe!

Coming up in tomorrows Member Report:

Why I’m buying Gold right now, but am not too optimistic!

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Lukas Kuemmerle

Lukas Kuemmerle

Founder & Editor of Kuemmerle Research