WCU: Commodities rise as King Dollar stumbles WCU: Commodities rise as King Dollar stumbles WCU: Commodities rise as King Dollar stumbles

WCU: Commodities rise as King Dollar stumbles

Commodities 10 minutes to read
Ole Hansen

Head of Commodity Strategy

Summary:  Commodity prices enjoyed a robust week on USD softness and a solid performance by the energy sector.

Global commodity prices staged a comeback this past week after the dollar failed to hold onto recent gains and rising stock markets helped to drive renewed risk appetite. The weaker dollar was led by the British pound which is headed for its best week since January following a week of Brexit drama in Parliament. The euro, meanwhile, managed to climb higher and back into the range that has prevailed for more than six months. 

Gains across commodities were broad-based and have occurred at a time when hedge funds have cut bets on rising prices across 24 major commodities to the lowest in three years. The is due in particular to an overwhelmingly negative view on agricultural commodities. The latest Commitment of Traders report covering speculative positions found hedge funds holding net-short positions in 12 out of 14 major agricultural commodities. At the opposite end, the crude oil-led energy sector remains the most-favoured sector, followed by metals.

The energy sector traded higher with WTI crude oil reaching a four-month high before running into profit taking ahead of key technical and psychological levels. Oil remains supported by tightening supply, both voluntary (from Saudi Arabia) and forced (from Iran and Venezuela). Worries about growth and future demand for crude oil remain just that at this stage, with the market instead responding to the continued tightening of supply. 

The livestock sector was the star performer with the price of lean hogs in Chicago surging by more than 10% in response to strong buying from China, the world’s largest consumer. An  outbreak of African swine fever has reduced China’s breeding herd by 15% during the past year, forcing the country to become an active importer.
Bloomberg Commodity Index
Industrial metals traded higher with zinc and palladium leading from the front amid continued concerns about tightening supply. Gold gyrated around $1,300/oz with traders left confused in the wake of the recent roller-coaster action. The short-term outlook remains clouded with uncertainty with key drivers such as (rising) stocks and the (weaker) dollar pulling in opposite directions. 

Gains across the agriculture sector were driven by short-covering, especially in grains which once again emerged as the most-shorted commodity sector after weeks of selling. The combined net-short in soybeans, corn and wheat jumped 50% in the latest COT update to reach a 13-month high – the highest for this time of year since 2016.
Agricultural commodities
Crude oil broke higher with Brent and WTI both reaching four-month high, in the process clawing back half of their October-December losses. WTI’s discount to Brent narrowed in response to signs of slowing US production growth and a surprise drop in stateside crude inventories. 

Monthly reports from the three major forecasters of Opec, the Energy Information Administration and the International Energy Agency all kept global demand growth outlooks close to unchanged for a fifth consecutive month. With demand seemingly not yet seeing any impact from weaker global growth, the market was instead left to focus on the price-supportive cut in production from the Opec+ group of producers. In addition, a 1.6 million barrel/day involuntary production decline from Venezuela and Iran during the past year has provided an additional layer of support. 

The six-month waiver that the US granted to buyers of Iranian oil back in November is approaching its expiry and it has raised some questions about what will happen next. Together with Kuwait and the United Arab Emirates, Saudi Arabia raised production by 0.8 million b/d into November in the belief that US sanctions would sharply reduce Iran’s export ability. Instead, they were wrong-footed by the US waivers and embarked on an aggressive cutting exercise to arrest the price slump; this resulted in 1.3 million b/d being removed from the market up until February. 
Crude oil production
Despite these cuts, the global market remains close to balanced and only a relatively small supply deficit is likely to emerge over the coming months. While supporting the market, it also raises the usual Opec dilemma of having to prolong production cuts to avoid the price-negative impact of the continued rise in non-Opec production. An extension, however, may not be necessary should the US administration decide not to extend some of the waivers beyond their current expiry dates. 

Brent crude oil stumbled on Friday on the approach to a band of resistance between $68/barrel and $70/b; this could indicate the oil market rally is ready for another pause. In WTI, a similar level of resistance is found at the key psychological $60/b area. 
Crude oil
Source: Saxo Bank
A volatile couple of weeks have left many gold traders exhausted and confused with regards to the short-term direction of gold, and silver as well. Hedge funds have been pumping and dumping positions in response to gold’s failed breakout attempts, first above $1,350/oz and then below $1,275/oz. Recent dollar and stock market strength reduced the focus on safe-haven assets such as gold while very tight fundamentals continued to send palladium towards new record highs. 

With dollar longs once again getting squeezed, gold found what turned out to be a weak bid this past week. After reaching $1,311/oz, it quickly dropped almost $20 before moving back above $1,300/oz. While we still see further upside to gold, the short-term outlook will be challenged in the belief that many investors primarily turn to gold for insurance when other assets, such as stocks, are challenged. 

On this basis, we conclude that a stable to lower dollar and renewed stock market weakness is required for the rally to resume in earnest. 

The short-term technical outlook is being challenged by the emerging bear flag on the daily chart. A break below $1,295/oz would increase the risk of a technical move towards $1,245/oz, the 200-day moving average. The market reaction to such a break would give us a clearer signal as to whether underlying physical demand will be strong enough to support gold prices and prevent such a setback.
Source: Saxo Bank

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article

Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at https://www.home.saxo/en-au/legal/.

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (https://www.home.saxo/en-au/legal/disclaimer/saxo-disclaimer)
- Analysis Disclaimer (https://www.home.saxo/en-au/legal/analysis-disclaimer/saxo-analysis-disclaimer)
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit www.home.saxo/en-au/about-us/awards

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.