Commodity Wrap: Iron ore, copper and gold prices skid on hot inflation

Commodity markets erased week-to-date gains on Thursday night as still-solid US economic data reaffirmed the view that the Fed will keep on tightening until otherwise.

The Bloomberg Commodity Index is down -0.64% so far this week, down from a peak weekly gain of 2.4%.

Bloomberg Commodity Price Index futures (Source: TradingView)

Iron ore futures fell -2.3% to US$99.85 a tonne this week. Prices struggled to hold onto earlier gains, inspired by China's seasonal pick up in construction and property sales activity. Chinese steel output was up 0.5% year-on-year in August, according to Breakwave Advisors. However, that's coming off a very depressed level of production from last year and only up a few million tonnes from July. So has steel production bottomed? Technically and for now, yes. But that's hardly reassuring.

Still, the world's largest iron ore miner, Vale said that the "iron ore market has stabilized with impacts of China’s Covid-19 lockdowns and real-estate woes already priced in."

Singapore iron ore futures (Source: TradingView)

Copper is on a four-day skid, down -2.75% to US$3.46/lb, driven by a weak economic backdrop, hotter-than-expected US inflation and looming interest rate hikes. Investors seemed to have ignored the tight supply narrative that helped copper prices rally around 5% last week. "The future curve in copper remains in deep backwardation (where spot prices are higher than futures), signalling physical supplies remain tight." said ANZ senior commodity strategist, Daniel Hynes.

Copper (Source: TradingView)

Gold is also on a four-day losing streak, down -3.1% to US$1,660 in the past week. The non-interest bearing yellow metal is spiraling lower as US Treasury yields continue to spike higher. The 1-year Treasury yield has rallied to 4.0%, up from a record low of 0.04% in December 2020. It seems that cash is no longer trash. The strength of the US dollar has added further insult to injury for gold prices, and arguably the preferred safe haven asset at the moment.

Gold spot price (Source: TradingView)

Crude oil was smashed on Thursday, down -4.03% and bringing week-to-date performance to -1.12% to US$91.07 a barrel. The International Energy Agency warned that China could see oil demand fall by 420,000 barrels a day this year, its first annual decline since 1990. Sentiment was further weighed after the US Department of Energy U-turned on the rumours that they might start refilling the Strategic Petroleum Reserve if prices fall below US$80 a barrel.

Gold spot price (Source: TradingView)