Commodities Futures and Options Brokerage


Paragon Commentary

Futures File: Silver, Grains & Oil

May 15, 2020

Massive Rush to Silver

Precious metals markets are heating up, with silver leading the way higher. The metal topped $17 per ounce on Friday for the first time in over two months, a sign that investors see silver as a safe-haven asset.

Silver fell under $12 per ounce during the worst of the coronavirus-driven market selloff in mid-March, but has seen resurgent demand since then, especially in the last two weeks, as it gained $2 per ounce.

As short-term economic risks are better understood, more traders are focusing on the recent debt expansion by the U.S. Treasury, which is borrowing nearly $3 trillion to cover the recent coronavirus relief packages. Long-term, rising debt could lead to inflation if the government is forced to lower interest rates or print money to meet its debt obligations, a scenario that could be a boon to precious metals.

 

Quick Planting Progress

Midwestern farmers have been working hard, taking advantage of good weather. Planting progress for corn and soybeans is well ahead of normal, a good sign for growing a healthy crop.

Timely planting reduces the risk that plants mature in too-hot late summer weather. As a result, crop watchers are revising this year’s expected harvest upwards on expectations for better crop yields.

Combined with general coronavirus market concerns, outlooks for a healthy crop are keeping prices near multiyear lows. December corn traded Friday for $3.32 per bushel, while November soybeans fetched $8.47.

 

Oil Spurts Higher

After falling as low as negative $40 per barrel last month, petroleum prices have exploded higher. Trading Friday for $29 per barrel, oil is no longer a hot-potato liability and is garnering interest from buyers.

U.S. crude oil supplies had been rising for 15 straight weeks, only to fall last week, a sign that the glut may have peaked. Demand is picking up slightly as Americans slowly begin to emerge from lockdowns, but the primary driver of tighter supplies has been falling production.

Low prices are forcing U.S. oil drillers to reduce output, and major global producers, especially Saudi Arabia, are beginning sharp cutbacks as well.

Long-term, crude near $30 is still incredibly cheap, a reflection of severe economic concerns, but rising demand and falling output appear to have solved last month’s issue of a market drowning in oil.

 

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