Commodity Chart Deck #12

Flash crash alert! Precious Metals get slaughtered and the Delta variant is dragging the Energy sector down. Here is what you need to be aware of.

Important! As the number of Covid Delta cases increases suddenly and many parts of the world are not sufficiently vaccinated, the commodity sector is currently under pressure. Monday starts with high volatility and I fear that this will drag on for the next few weeks.

A Tapering event is getting nearer and nearer after last weeks job market report showed signs of rapid improvement in the labor market. This is great news for the economy, in general, but means also that there is the potential of higher yields of money borrowing or in plain English, higher yields on treasuries and corporate debt. These prospects were reason enough to put the brakes on the commodity sector in the last week. Precious metals had to struggle the most with the developments. On Sunday night we even saw a flash crash in Gold, which lost as much as 5%, and Silver, which lost as much as 8% during the session. A flash crash can be a contrarian bullish signal for investors. Investors were forced to close large futures positions, probably because of the larger drawdowns from last week. Both metals bounced back from important support levels. But too early to tell. I’m not intended to sell my Gold position because of such short-term noise.

The Energy sector is coming under pressure due to a rapid increase in the Covid Delta variant and fears that economic dynamism will weaken again. IMO there will be great re-entry opportunities in Oil related products in the near future.

US Dollar Update

My long EUR/USD call from last week was not that brilliant, but fortunately, I was able to get out of the trade with a small profit.

But even after the huge volatility in currencies last week and moreover a strong Dollar after the great job market report, the base case scenario for the USD stays the same:

If we see a new higher high, so basically a close above 93.4, the USD long scenario would be confirmed for me

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Open Futures Positions:  
- Long Gold @ 1803 USD (added to my position @ 1767)
- Short Lean Hogs @ 107 USX 
- Long Crude @ 67.40 USD (closed last week @ 71.46)
- Long Euro @ 1.18465 (closed last week @ 1.18570)
New - Long Bitcoin @ 42880
New - Short 5y Treasuries @ 124'02

As always, here are my current top setups, selected from all major commodities and other important markets:

Apart from my commodity picks, it actually looks like bond yields could rise again in the coming months. At least according to my analysis. I went short on the 5Y treasuries last week. I think the shorter end of the yield curve is the one you want to be short. Historically it was wiser to take positions on the short end and not at the long end of the curve when a tapering scenario was imminent. I’m also looking forward to short the 10Y if we get a bullish breakout at the 10Y-2Y yield spread.

Elsewhere In The Macro World

Bitcoin attempted another breakout above the 41.000 USD mark during the week. This time it could be successful in my opinion. Because of that, I took my first long position since a long time. All eyes are on Bitcoin but the real interesting crypto asset in my opinion is Ethereum (based on Safety aspects and processing speed, as well as the ability for Central Banks to build their own tokens on the Ethereum layer)

The latest CPI and PPI data from China showed that the trend of rising consumer and producer prices is still intact. During this week we will get the latest inflation data from the US.

This week look out for:

  • CPI print on Wednesday

  • PPI print on Thursday

  • Many FED speakers during the whole week

  • Treasury auctions on Wednesday (10Y) and Thursday (30Y)

  • Increasing Delta case numbers and the risks to the global re-opening

  • Crude Oil & NatGas inventories

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Till next Monday, Lukas

If you have any questions in the meantime, please feel free to contact me via Twitter or Mail.

(The Commodity Report is not investment advice)