European investors seeking shelter from rising inflation and a sharp deterioration in the economic outlook saw returns 24% and +21% higher than gold versus the benchmark Euro Stoxx 50 and euro government bonds.
We maintain a positive outlook for gold, driven by the need to diversify into volatile equities and bonds, increasingly entrenched inflation and lingering geopolitical concerns. After finding support at $1875 this week, a weekly close above $1920 could see further upside driven by fresh momentum and technical buying.
Copper broke the uptrend from the 2020 low, dropping to near a three-month low around $4.40 per pound, before sentiment received a boost from the promise of the China to maintain the growth target of 5.5%, a level that the Chinese economy is currently operating well below.
While the short-term outlook has deteriorated and inventories in exchange-watched warehouses have increased over the past four weeks, the outlook, in our view, remains supportive for price. The demand for action to insulate Russia through a reduction in dependence on its oil and gas is likely to accelerate the electrification of the world, which requires abundant copper.
Additionally, Chile, supplier of 25% of the world’s copper, has seen its production slow in recent months, and with “anti-mining” sentiment emerging in the newly elected government, the prospect of maintaining or even increasing production seems questioned. In addition, the 13 years of drought and water shortage in Chile have a major impact on the copper production process, which consumes a lot of water.
Additionally, government legislation has been proposed to prioritize human water consumption and, if passed, may delay the investment decision, but also compel mining companies to invest in desalination facilities, thereby further increasing the cost of production.
Chicago soybean oil futures hit a record high as Indonesia’s sweeping ban on palm oil exports and rationing of sunflower oil in supermarkets in Europe further expand the global supply of edible oils. Export restrictions for palm oil used in everything from cooking to cosmetics and fuel will remain in place until domestic prices ease and given that Indonesia only consumes a third of its production, we should expect exports to pick up once stocks are replenished and prices stabilize.
The edible oil sector, which according to the UN food index has grown by 56% over the past year, is hardest hit by bad weather and war in Ukraine, the world’s largest exporter of oil. sunflower oil, and it leads to food protectionism by producers who inadvertently can raise prices even further.
Speculators recently increased their exposure to US crop futures to an all-time high as plantings slowed and crop conditions deteriorated, pointing to a difficult and favorable situation for prices. In its latest weekly update, released on Monday, the U.S. Department of Agriculture said corn planting advanced 3% to 7% completion, the slowest pace in nearly a decade and the lags behind last year’s 17% pace.
Good/Excellent winter wheat fell 3% to 27% and was near the worst on record. Delays and planting conditions were caused by the weather being too cold, too wet or a combination of both. Big grain harvests in North America are needed this year after Russia’s invasion of Ukraine reduced shipments from the Black Sea, where 25% of global wheat exports come from, while raising doubts about this year’s agricultural production in Ukraine.