Report Commodity Futures F&A€¦ · the relative demand, highlighting how that market interacts...

Warning

This is an academic paper related to an academic project. This paper is not an investment suggestion and it does not in any way represent an

invitation to purchase the securities we virtually invest in.

1

Research Area

Fixed Income &

Alternatives Research

A Fundamental and Technical analysis of the major

commodity futures

Summary

I - Report Overview ........................................................................................................................................................................ 2

Purpose and ETF ....................................................................................................................................................................... 2

Structure ..................................................................................................................................................................................... 2

II - Fundamental and Technical Analysis ..................................................................................................................................... 3

Agriculture ................................................................................................................................................................................. 3

- Corn .............................................................................................................................................................................. 3

- Soybeans ....................................................................................................................................................................... 7

- Sugar........................................................................................................................................................................... 11

- Wheat ......................................................................................................................................................................... 14

Base Metals ............................................................................................................................................................................... 18

- Aluminum and Zinc .................................................................................................................................................. 18

- Copper ........................................................................................................................................................................ 20

Energy ....................................................................................................................................................................................... 21

- Oil and Brent ............................................................................................................................................................. 21

- Natural Gas ................................................................................................................................................................ 26

Precious Metals ........................................................................................................................................................................ 29

- Gold ............................................................................................................................................................................ 29

- Silver ........................................................................................................................................................................... 32

III – Forecasts and Comments ..................................................................................................................................................... 35

Forecasts and conclusions ............................................................................................................................................................... 35

Arturo Schembri

Head of Research Area and F&A

+39 3293826060

Alberto Novello, F&A Analyst

+39 3492898939

Gabriele Maggio, F&A Analyst

+39 3887320400

Matteo Mozzi, F&A Analyst

+39 3475524748

Riccardo Piccinini, F&A Analyst

+39 3385010304

Tommaso Beverina, F&A Analyst

+39 3389882791

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I - Report Overview

Purpose and ETF The aim of this report is to support the Asset Management Area including alternative financial instruments

to the Minerva portfolio. After accurate analysis, we have come up up with an ETF that replicates the main

commodity futures traded in the market. Therefore, we can assume that the ETF will replicate the major

trends of the commodity market’s price.

The chosen ETF is the “Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF”. The fund

is an actively managed exchange-traded fund that invest in commodity-linked futures and other financial

instruments that provide economic exposure to several of the world's most heavily traded commodities. In

order to provide a proper analysis of the underlined ETF, we studied the behavior of the markets behind the

commodity futures; to be precise, we analyzed the Agriculture market, the Energy market, the Base Metals

market and the Precious Metals market.

The fund heavily relies on the Energy component, being it the 63.45% of the overall fund’s investment.

The Energy component is followed by the Agriculture (18.11%), the Base Metals (10.18%) and eventually

the Precious Metals one (8.24%). The Total Expense Ratio (TER) requested by the fund is 0.61%.

Structure The report follows a clear structure. We firstly analyzed the fundamental factors behind the different

commodities replicated by the fund. We focused our fundamental analysis on the global markets where the

commodities are traded and where they originate. For every commodity is displayed the supply power and

the relative demand, highlighting how that market interacts with the socio-economic environment in which

it lives. Moreover, where necessary, a political overview had been done to better understand the behavior

of the specific commodity.

Secondly, we did a technical analysis of the prices of these commodity futures. The analysis will be at the

end of each commodity’s paragraph. We used daily, weekly and monthly time series of the futures to deliver

a three methods analysis. We merged the Moving Averages, the RSI (Relative Strength Index) and the ROC

(Rate of Change) in order to fully absorb the market information given by the time series.

The most popular method is the use of Moving Averages. The fundamental aim of the Moving Averages is

to minimize the fluctuations in the prices of the securities in order to purify the quotations from the

distortions deriving from the nervousness of the markets, the so-called "noise" of the graph, making the

trend more regular and easier to portray.

The RSI, elaborated by J.W. Wilder in 1978, is extremely popular, especially among traders on the futures

market. It is calculated with the following formula:

𝑅𝑆𝐼 = 100 −100

(1 + 𝑅𝑆)

Where:

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𝑅𝑆 =𝑀𝐼

𝑀𝐷

𝑀𝐼 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑛𝑐𝑟𝑒𝑠𝑒𝑠 𝑢𝑝𝑜𝑛 𝑛 𝑑𝑎𝑦𝑠

𝑀𝐷 = 𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑑𝑒𝑐𝑟𝑒𝑠𝑒𝑠 𝑢𝑝𝑜𝑛 𝑛 𝑑𝑎𝑦𝑠

It assumes a value equal to zero when the average of the increases, in the period considered, is equal to

zero; it assumes a value equal to 100 when the average of the decreases is equal to zero. So, its value can

only vary within the range 0-100: for this reason, it is said that the RSI is an oscillator. In the trading market

phases, it provides a sell signal when it is in the overbought zone (above 70) and it comes out while prices

are still rising (bearish divergence). Instead, it provides a buy signal when it is in the oversold zone (under

30) and comes out while prices are still falling (bullish divergence).

The ROC is a momentum indicator. It measures the extent of change in the prices of a financial instruments

in a determined time frame. The ROC fluctuates around 1: values above 1 indicate a positive trend in the

period considered; values below 1 indicate a negative trend. Its formula is:

𝑅𝑂𝐶 =𝐶𝑙𝑜𝑠𝑒 𝑝𝑟𝑖𝑐𝑒𝑡

𝐶𝑙𝑜𝑠𝑒 𝑝𝑟𝑖𝑐𝑒𝑡−𝑛

The commodity futures prices are analyzed with the continuation 2 type of future. We picked out the price

from the main market where the commodity future is traded. Anyway, the price is not relevant for the

technical analysis because we use standardized indicators and oscillators. We used daily and weekly time

series to conduct our analysis.

At the end of the report, we will give some forecasts about the ETF considered.

II - Fundamental and Technical Analysis

Agriculture

- Corn

i. Fundamental Analysis

The global production of corn is expected to grow 29.9% because of record production in

the US, Ukraine, Argentina. The historical revision released by the Chinese National

Bureau of Statistics has been another factor that influenced the market. China will produce

less this year than in 2017/18, but the revision of data from the 2007/08 season by CNBS

has recalculated the volume of corn of the last ten years. This has affected the projection

for this current output, stimulating corn production to grow 31%. In addition, increasing

production from Ukraine and Argentina has affected the forecast.

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EU countries are facing lower production. Lower yields for corn this month have

influenced the supplies. The reduced forecasted supplies have pushed corn price up 0.10$

per bushel at 3.60$.

The value of corn exports fell by an average of -16.2% for all exporting countries since

2013, when corn shipments were valued at $35.4 billion. Year over year, the value of global

corn exports appreciated by 0.5% from 2016 to 2017.

World 2018/19 coarse grain ending stocks are forecasted 148.3mln tons lower than the

revised 2016/17 season. The new figures show that China has a major stake in the share of

global corn stocks, holding almost 70% of them. Important development in the global trade

will come up from the meeting between President Trump and President Xi at the G20

summit at the end of the month.

The corn market share looking at exports during 2017 are:

1. United States: US$9.6 billion (32.3% of total corn exports)

2. Brazil: $4.6 billion (15.6%)

3. Argentina: $3.9 billion (13.1%)

4. Ukraine: $3 billion (10.1%)

5. France: $1.4 billion (4.8%)

6. Russia: $887 million (3%)

These six countries accounted for almost 80% of exports.

US corn supply is forecasted at 446.0mln tons, 2.8mln tons below 2017/18. Exports, as

well as resulting ending stocks, will also decrease. Moreover, a slight increase in corn for

fuel ethanol use is predicted. The forecast yield for the 2018/19 season reported a decline

of 1.8 per acre to 178.9 bushels with consequent supplies of 16.816mln bushels due to

changes in production. Supplies will be still the third highest ever after 2016 and 2017. The

exports are lowered 25mln bushels to 2.450mln, still at a record high. However, the

competition in corn export markets is increased with the astonishing performance of

Ukraine, which will affect the shipment from the US. In addition, ending stocks are

projected lower by 76.9mln bushels to 1,736mln. The projected average price received by

farmers in 2018/19 has as a median price of 3.60$ higher than the average price of 2017/18

3.36$. The related fuel ethanol is facing a mature market in US and will be focused on and

increasingly dependent on gasoline consumption.

Corn production prospects grew for Argentina, with higher forecasted harvested area up

0.2mln. This thanks to timely rains in key corn-growing areas. The projected output is up

10.5% from last season. Exports are up 0.5mln tons to 27.5mln. Mato Grosso, the largest

grain producing state in Brazil is facing a hard season because of drought. Mato Grosso

accounts for almost 30% of corn production and produced in the last season 29mln tons of

corn. A resolution to the ongoing trade war between China and the US and a strengthening

of the Brazilian real compared to the dollar, is likely to revive tension between farmers, the

trucking union and the government in Brazil over the cost of transporting goods. The

Government minimum tax on freight that will cost 4bn$ to the agricultural industry is not

helping. However, there have been positive notes to this harvesting season: the forecast for

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Brazilian corn production sits at 3.72 billion bushels, 492 million bushels more than last

year's crop estimate.

The corn output in Ukraine is astonishing with yield topping the previous record of 2016/17

by 13%. The corn has enjoyed ideal conditions for growth: no heat stress, favorable rains

and an increase of imported hybrid seeds. The production is 9.4% higher than last year.

The export market has a favorable environment because of the long-time currency

depreciation. The exports are 2mln tons higher reaching 27mln. Ukraine’s state grain

company, DPSKU, is increasing its exports of cereals, meals and sun oil to China as it

seeks to further develop trading routes to place its growing volume of agricultural

commodities, the company said in a statement on Tuesday. China revision comes from a

newly issued National Statistical Yearbook covering 11 years of data from 2017/18. The

2018/19 output is forecasted 31mln tons higher. However, the revision of the previous

period shows that in both the 2016/17 and 2017/18 seasons the corn area was higher. This

downward trend in corn planted fields could be explained by the end of price support by

government back in 2015.

China according to USDA’s forecast is expected to import nearly 17 million tons of coarse

grains during 2018/19.

Russia corn yields are projected a little higher than in the October forecast (0.3%), but the

forecasted production is down 2% from last season.

ii. Technical Analysis

The RSI index, particularly useful in the futures market, has underlined a fluctuant trend

in the last six months. In July corn prices has increased moving the RSI from an oversold

level to an overbought one in August. A regular decrease has followed in September, but

the trend was reversed in October. Since October, the RSI values are increasing and are

now in the overbought band.

The momentum ROC index has been measured over a period of 3 years with a weekly

frequency and has shown a negative trend in corn until January 2017 with the only

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RSI - Corn

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exception of June 2015. However, since January 2017 the trend is clearly upward. 2018

has shown a range of value between 1 and 1.1 showing a stable positive trend in corn.

The trend underlined in prices of corn measured on a monthly basis show a downward

trend in the period 2013-2016 with prices falling from a maximum above 500$ to a

minimum slightly above 300$. Than in August 2016 start a trading period with prices

progressively converging to a value slightly below 400$. The trading movements seem to

evolve in an upward trend with minimum soaring and pushing prices up.

This trend is confirmed by the daily analysis of the last six months. Since July, when prices

reached 340$, the trend has been clearly positive with rising minimums. The trend seems

to highlight a convergence on the prices value of 380$. With fluctuations limited in the

range 370$-390$.

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Supports and Resistors - Corn

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The linear moving average on weekly frequency in the last 3 years has underlined only two

major trending periods with prevalence of trading. The first trend starts in May 2016

reaching a high of almost 450$ in June. This gain was quickly offset by loss until August

2016 bringing down prices down to 325$. The other main trend has begun in January 2018

bringing prices above 400$ in June 2018. Prices however plummeted to 350$ in September

2018. In October, prices increased but there is no evidence this trend will last.

- Soybeans


A recent rally in soybean prices rested on the potential for a trade deal between the United

States and China. A few rallies occurred since the escalation of trade issues between the

U.S. and China in June. According to University of Illinois agricultural economist Todd

Hubbs, the question becomes whether should one sell on rallies associated with trade

negotiations.

World soybean production is set for a strong marketing year. U.S. soybean production is

projected at 4.6 billion bushels for the 2018 crop. This production level is 189 million

bushels larger than the 2017 crop and is set to push ending stocks for the current marketing

year above 950 million bushels, due to the reduced potential for exports. Brazilian

production is forecast to be 5.7 percent higher than last year as higher export demand drove

an increase in acreage the planting season.

Projected harvested acreage in Brazil sits at 92.7 million acres, up 6.8 percent from last

year. Brazil’s soybean yield in 2017-18 came in at a record 50.7 bushels per acre, up from

50.3 bushels per acre the previous year. The yield projection for the current crop is 47.7

bushels per acre.

Argentine soybean production is forecasted at 2.04 billion bushels, up from last year’s

drought impacted total of 1.4 billion bushels. World production sits at 13.5 billion bushels

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Close Price Average n=5

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for this marketing year, up from 12.4 billion bushels last year. While domestic consumption

is projected up 558 million bushels to 12.9 billion bushels, world ending stocks look to rise

by 455 million bushels to 4.1 billion.

For U.S. soybean prices, the market share of exports remains the key despite the promise

of strong crush levels this marketing year.

Over the last decade, China took 60 percent of the world’s soybean exports. USDA

projections for Chinese soybean imports for 2018-19 are 3.307 billion bushels. The current

level is a 152 million-bushel decrease from last year. USDA’s forecast sits around 180

million bushels above Chinese estimates. Brazil benefited after the implementation of a 25

percent tariff by China on U.S. soybean imports. During June through October, Brazilian

soybean exports are up 34.1 percent over last year at 1.422 billion bushels.

The projection for U.S. soybean exports during the 2018-19 marketing year is 1.9 billion

bushels. This forecast is 229 million bushels lower than last marketing year’s total exports.

Census Bureau export estimates are only available for September. September exports came

in at 119 million bushels, down 45 million bushels from last September. Census Bureau

exports exceeded weekly export inspections by 2 million bushels during September.

Soybean exports through Nov. 15 equaled 407 million bushels if the relationship between

export inspections and Census Bureau data stayed consistent. Soybean export inspections

currently trail last year’s pace by approximately 43 percent. As of Nov. 8, 425 million

bushels of soybean had been sold for export but not shipped. The current unshipped export

sales number trails the 574 million bushels sold at the same time last year.

A notable expansion of soybean exports to the European Union (25.9 million bushels) and

Mexico (13.4 million bushels) occurred in September. While U.S. exports traditionally go

to these regions, the expansion is substantial at 21.1 million bushels above last year. In

conjunction with growth in traditional markets, Egypt, Argentina, and Iran emerged as

strong export destinations with 25.6 million bushels in total. These nations imported almost

nothing last year, Hubbs says.

September exports to China came in at 2.5 million bushels, down 103 million bushels from

last year. Through Nov. 8, outstanding sales and accumulated exports to China sit 644

million bushels below last year’s pace.

While Chinese and U.S. negotiators resuming talks is a positive development, the

probability of a deal still seems somewhat remote based on the differences between the two

nations. The forthcoming meeting at the G-20 summit in Argentina between U.S. and

China may only settle on an agreement for future talks and possibly delay an increase of

U.S. tariffs on Chinese goods set to go into place on Jan. 1. If negotiations sputter and the

tariff increase is enacted, a resolution could be a long way off. Weak U.S. exports and

growing world stocks may make soybean price rallies associated with trade rumors decent

windows for pricing.

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For what concerns the technical analysis, the following are the graphs showing our results

for the soybean price. The technical analysis methods and how to interpret them are

displayed in chapter 1.


The RSI alternates period of overbought with period of oversold. The last 2 months

followed a decreasing trend, returning to an oversold period. However, recently the trend

inverted its route, facing period of increasing RSI.

The momentum ROC indicator oscillated around 1 in the last 3 years. However, during the

summer 2018 it faced a drop to 0.8. In November, it followed an upward trend and we

think it ill remain above the 1 threshold in the near future.

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RSI - Soybeans

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For what concerns supports and resistors, there is an upward support trend and an upward

resistor trend. However, before September the resistor trend was following a negative

slope.

The following is the moving average for soybeans commodity future.

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Moving Averages - Soybeans

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- Sugar


The global industrial sugar market is expected to grow at a substantial rate owing to

increasing demand from confectionary, cereal, dairy, and bakery applications.

Furthermore, the growth of the agricultural industry, which has resulted in the high

production of cane sugar is expected to have a positive impact on the production statistics

of the industry.

Industrial sugar is commercially manufactured using two key raw materials including sugar

cane and beetroot. Cane based sugar has been dominating the industry owing to early

adoption, abundant production volumes and high consumer preference for the product.

However, changing consumer dietary habits, coupled with rising awareness regarding the

health hazards associated with high sugar consumption are expected to impact the product

demand over the projected period.

In terms of types, the market is segmented based on white, liquid and brown sugar. White

sugar has been the most common type amongst all and dominated the market in terms of

both production and consumption. High demand for the product in confectionary and

bakery type is expected to propel industry growth over the projected period.

The industrial sugar market is segmented based on products as powdered, granulated and

syrup. Granulated sugar is the most consumed products amongst all, which finds high

demand for food & beverage, pharmaceutical, dairy, and bakery industry. Furthermore,

increasing demand for the product in the manufacturing of sweets, marmalade, chocolates,

and chewing gum is expected to have a positive impact on the industry trends.

The increasing demand for sugar in diverse application industries is encouraging the new

entrants in the market which in turn is expected to increase competitive rivalry. The

manufacturers primarily compete on the basis of production capacities and regional

coverage. The industry has numerous small and medium-sized local players and a few

market giants, which serve globally.

Rising concerns over the economic and ecological impact of huge scale sugar crop farming

is expected to be the key restraining factors. Several countries across the globe devote over

25% of the agricultural land to sugarcane production. The increasing use of agrochemicals

and fertilizers during the production can contaminate course of water affecting wildlife and

people. Additionally, mills release toxic gases from the combustion which is harmful to

human and wildlife health. The aforementioned factors are expected to act as a restraining

factor for the market growth over the forecast period.

The growing monoculture production of sugar used in industry and alternative sweeteners

including stevia, raw honey, coconut sugar, and dates is expected to hinder the industrial

sugar market growth over the projected period. Moreover, increasing number of diabetic

patients across the globe is expected to degrade the usage of industrial sugar hampering its

demand in application industries.

Asia Pacific region is the leading industrial sugar market and this trend is expected to

remain same owing to increasing plantation of sugarcane and rising end-use demand over

the forecast period. Moreover, abundant raw material availability in the southern Asian

Warning



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countries such as China, India, Pakistan, and Indonesia owing to favorable atmospheric

conditions, is likely to impact the industry trend on a positive note.

Brazil is one of the largest producers of sugar in the world wherein the production doubled

from 2000 to 2014. Moreover, in 2014, the country accounted for approximately 25% of

the global sugar production. It is also one of the largest exporters of sugar and is expected

to remain same over the forecasted period owing to the abundant availability of raw

material in the region.

As of 2016, European Union was one of the largest producers of beet sugar comprised of

approximately 50% of the world's production. The region had a quota for sugar production

which was eliminated in late 2016 thereby propelling the production. This is expected to

reduce the cost associated with sugar production which in turn is projected to fuel the

market growth over the forecast period.

The key players in the industry are Cargill, Tereos, Nordzucker Group AG, E.I.D Parry

Limited, Sudzucker, AG, Archer Daniels Midland Company, Illovo Sugar (Pty) Ltd, and

Nordzucker Group AG.


The RSI oscillator is cyclical. Indeed, it alternates period of overbought with strong period

of oversold. In the next months, we expect a declining RSI.

The momentum ROC indicator stayed below 1 over all the 2017 and half 2018, after a peak

od 1.35 on July 2016 and 1.15 in March 2017. During October 2018, it passed again the

1.2 threshold, and we think it will remain above 1 in the next 3 months.

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RSI - Sugar

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The resistors are in an upward trend, signaling that the price will continue to rise in the

near term. However, the slope of the resistor line is significantly reduced with respect to

the previous months. For what concerns the support, it is signaling a stable threshold of 11.

The following is the 6 months moving average of the sugar future commoditiy.

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- Wheat


The global wheat production for 2018/2019 has been increased mainly because of the

rallying in projected China production. For 2018/19, gains in projected wheat production

in China are offsite by Australian losses. The farming in Australia, down 1 million tons to

17.5 million, the lowest level since 2007. In addition, the market faces smaller reductions

in Morocco, Pakistan, and Ukraine. Without considering China, the production would be

lowered by 0.9mln tons from October. The forecasted production will be 7333.5mln tons,

gaining 2.6mln in this forecast month.

However, the reduced wheat production forecast for all the countries excluding China, the

higher price and the “trade war” on the background suggest lower projection for wheat use

and trade. Major players

The wheat main exporters in 2017 were:

1. United States: US$6.1 billion (15.7% of total wheat exports);

2. Russia: $5.8 billion (14.8%);

3. Canada: $5.1 billion (13%);

4. Australia: $4.7 billion (11.9%);

5. France: $3 billion (7.7%);

6. Ukraine: $2.8 billion (7.1%);

7. Argentina: $2.4 billion (6.1%);

8. Germany: $1.6 billion (4.1%);

That accounts for about the 80.4% of the global trade.

Season-average farm price (SAFP) is steady and remains at $5.10 per bushel. However,

seed use grows according to USDA, which forecasts of 51mln planted acres in 2019/2020.

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This planted area and the seed per acre rate increase the estimates of seed use for 2019/20

of 69mln. In addition, exports of white wheat increased 5mln bushel as an effect of the

reduction in Australian exports. Flour production is on track with former estimates at

970mln. The extraction rate exceeds both 2016 and 2017 levels. The higher the extraction

rate is, the lower the wheat grain required. US exports will be increasingly important in

wheat trade. Indeed, as the season progress competitors will exhaust their limited supplies.

The new exporting year for the East Europe has started with an aggressive exporting

campaign from Russia that is trying to keep market share in key buyer countries in the

global stage. However, the current level of exports cannot last long due to limited supplies.

Russia agricultural Minister increased the forecast of production of grain to 110mln tons

with the exports at 38mln tons. Ukraine’s agricultural minister released some data on

Friday: the harvest of grain is at 65.8mln tons, up from last year 56.5mln and the year

production should be at 68mln tons against 61.3mln in 2017.

The wheat production in the EU is down 13.7% since last year, although there is a small

upward adjustment in projection (about +0.1%) thanks to better performance of Germany,

Hungary and Romania. The FranceAgriMer (a farming agency) released data on Friday 16

that show that initial condition for newly sown wheat are their worst in six years mainly

for the effect of the drought of last summer. Moreover, the wheat that is in good/excellent

condition is rated at 82% of the production; last year was the 97%. Germany, although a

slightly better performance in production, is having hard times in exports his wheat. Saudi

Arabia, a traditional buyer of German wheat, bought 475.000 tons, a relatively small size.

However, there is still hope for more shipment. EU soft wheat exports are a quarter below

last year level; in addition, euro climbed at 1.14$ against a weaker dollar after Federal

Reserve expressed caution about global growth.

China National Development and Reform commission (NDRC) has set on Friday the

minimum purchasing price at 2240 Yuan per ton, down 5% from last year (2400 Yuan).

This move is aimed to increase the quality in the production process and it is part of broader

reform in the agriculture sector. The mechanism allows farmers to sell at the minimum

price to the state if the market price drops with the effect of a growing stocks of grain.

China wheat stockpiles account for about a half the world’s inventory. In addition, the

move is aimed to align more domestic and international price due to increasing pressure

from US for fair trade. This move will affect the planting decision from next year and at

the moment, prices are not affected.

Wheat production in Canada grew by 3.5% in 2018. Recent meteorological changes has

improved the estimates of July. Interesting the developments in the new US-Canada trade

agreement that will replace NAFTA. In fact, according to the office of U.S. Trade

representatives, the new non-discriminatory barriers will take place allowing US farmers

to export durum grain that was previously allowed only to animals feeding in Canada.

Canada agricultural minister spokesman did not answer to a question on these recent

developments.

Australia has lowered the forecast on wheat production down 13% on Tuesday. The reason

is the drought that has considerably affected the east coast output. Wheat production will

Warning



16

be 19.1mln tons: a 10-year low. Reduction in exports has created concerns on global

supplies supporting benchmark prices as Australia export about 2/3 of the output. The east

coast production is at 5.74 tons, in 2015/16 totaled instead 17mln tons.

Argentina has two major concerns in the harvest season this year. The first is about the

speculation about the weather impact on his wheat production. The second concern is

related to Macri’s announcement of a 10% tax on exports included in the package of

measures Argentina is proposing to unlock the $50bn loan from IMF. Although this effect

could be relatively insignificant if peso keep falling, this could affect next planting season

in 2019. Farmers are also affected by the increase in price ($) in agricultural inputs, like

pesticides.


The RSI in July soared to a level of 80 reaching the overbought band. On August the RSI

was quite stable in a range of 85-60 with only little drop in the first half of the month. On

the last part of August, the trend was reversed reaching a minimum below 30; since than

the RSI is quite steady in a band between 45 and 65 with a converging trend on the value

of 60.

The momentum ROC has a fluctuating trend in the wheat market. The index in the period

2014-2016 has fluctuated from a minimum of 0.7 in January 2015 to 1.2 June 2016. A

regular rose is seen in the second half of 2016 and in the first part of 2017 reaching the

value of 1.

0

10

20

30

40

50

60

70

80

90

20/07/2018 20/08/2018 20/09/2018 20/10/2018 20/11/2018

RSI - Wheat

Warning



17

The prices measured on a monthly basis in the last five years has underlined two major

periods. Until August 2016, the trend was clearly negative, decreasing from a maximum of

700$ in April 2014 to a minimum below 400$ in August 2014. Then, has followed a trading

phase with values between 400$ and 500$ until July 2017. Since then the trend is upward

with rising minimums and a range of 500$-600$.

The last six months' daily prices have shown a trading phase with decreasing maximum.

Especially since October, prices seem to converge to the value of 500$ with probable

correction downward although there is no evidence of an incoming downward trend. The

trading phase could carry on in the next months also due to the major uncertainties that the

market is facing.

The linear moving average measured on the weekly prices of the last three years is useful

for trending periods. The major trend in the last three years is a 100$ price loss from June

2016 to October 2016. A soar in June 2017 pushed prices above 500$; however, this gain

was levelled off already in September. A clear upward trend is shown by the medium in

0

0.2

0.4

0.6

0.8

1

1.2

1.4

01

/09

/20

14

01

/11

/20

14

01

/01

/20

15

01

/03

/20

15

01

/05

/20

15

01

/07

/20

15

01

/09

/20

15

01

/11

/20

15

01

/01

/20

16

01

/03

/20

16

01

/05

/20

16

01

/07

/20

16

01

/09

/20

16

01

/11

/20

16

01

/01

/20

17

01

/03

/20

17

01

/05

/20

17

01

/07

/20

17

01

/09

/20

17

01

/11

/20

17

01

/01

/20

18

01

/03

/20

18

01

/05

/20

18

01

/07

/20

18

01

/09

/20

18

01

/11

/20

18

Momentum ROC - Wheat

0

100

200

300

400

500

600

700

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Support and Resistors - Wheat

Warning



18

December 2017. Prices gradually soared for one year reaching almost 600$. In the last two

months prices seem to have lost, the trend seems to indicate a slight correction downward.

Base Metals

- Aluminum and Zinc


Metal prices were relatively stable between 1995 and the end of 2003, then increased

strongly until the middle of 2011 (apart from a dip during the global recession), then

declined until early 2016, after which they started rising again. Prices were about 75%

higher in September 2017 than in 1995, led by iron ore and copper, while aluminum prices

remained more stable over this period.

Reflecting buoyant economic growth over the last decade, China has become a dominant

player in terms of its share in the consumption of metals and, for some metals, also in terms

of production. China consumes about 50 to 60% of world metals and accounts for around

50% of world aluminum production and 35% of world copper production. However, its

share in iron ore consumption decreased from 70% in 2014 to 60% in 2015, reflecting a

gradual economic rebalancing in China away from commodity-intensive activities and

towards services. In addition, environmental concerns supported lower steel production in

China, with a negative impact on demand for iron ore.

The World Bank’s Metals and Minerals Price Index dropped 10 percent in the third quarter,

despite falling LME inventories, with declines in all metals except iron ore. Softening

global demand, strengthening U.S. dollar and growing trade tensions between the United

States and China contributed to the fall. However, metals prices are still expected to be 5

percent higher in 2018 (on average) than in 2017, given the strength earlier this year.

Although prices are expected to remain broadly unchanged in 2019, upside risks to the

0

100

200

300

400

500

600

700

Moving Average - Wheat


Warning



19

forecast include higher-than-expected demand from China resulting from fiscal and

monetary stimulus measures and supply reductions due to stricter environmental policies.

Downside risks include a worsening in the trade dispute between the United States and

China.


Analyzing the RSI index, we can see that it has abundantly exceeded the Oversold

threshold (30) in the last 5 days: this provides us with a purchase signal.

Analyzing the ROC, we see that in the last 2 months the indicator has fallen below the

critical threshold of 1: this signals a negative trend.

0

10

20

30

40

50

60

70

80

90

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

RSI - Zinc

0.60

0.80

1.00

1.20

1.40

1.60

08/01/2016 08/07/2016 08/01/2017 08/07/2017 08/01/2018 08/07/2018

Momentum ROC - Zinc

Warning



20

The following are the supports and resistors for Zinc.

At the end of October, prices have broken down the simple moving average: this is a sale

signal.

- Copper


Copper is one of the most widely used metals on earth and plays a vital role in everyday life,

with uses ranging from electrical wiring to fertilizer. The price of copper is believed to provide

19500

20500

21500

22500

23500

04/07/2018 04/08/2018 04/09/2018 04/10/2018 04/11/2018

Supports and Resistors - Zinc

19000

20000

21000

22000

23000

24000

25000

23/03/2018 23/05/2018 23/07/2018 23/09/2018 23/11/2018

Moving Avarage - Zinc


Warning



21

a reliable measure of economic health, as changes to copper prices can suggest global growth

or an upcoming recession. This link between the global economy and copper prices makes the

metal a popular choice among traders who want to speculate on sectors.

Copper prices dropped 11 percent in the third quarter (q/q) and they are 4 percent lower

compared to the same period in 2017, again reflecting the effects of trade tensions on market

sentiment, given that China accounts for over 50 percent of global consumption. Copper

production remained robust as fears of supply disruption due to labor strikes in Chile did not

materialize – Chile is the world’s largest copper supplier and has the largest copper reserves in

the world. Furthermore, supply growth is expected to remain strong as mines continue to be

expanded elsewhere, including in the Democratic Republic of Congo and Zambia. Despite

these factors, strong demand helped boost prices earlier in the year, such that prices are

expected to rise 5 percent in 2018, on average. Prices are expected to rise by a further 1 percent

in 2019 supported by fiscal and monetary stimulus in China, particularly directed toward

infrastructure investment.

Copper for November 2018 delivery has risen 5.3% this month, compared with an 11.5% drop

in prices for Brent crude, the global oil benchmark. The divergence is notable because many

investors trade oil and copper in the same basket of commodities, with a larger share devoted

to crude.

The recent stability marks a reversal for copper, which fell more than 20% over the summer,

when fears of a global trade war between the U.S. and China intensified.

That decline may have been overdone, leaving copper more stable than other commodities now.

The copper commodity future is the only one with no technical analysis due to the lack of data

on the major data providers (Bloomberg, Thomson Reuters).

Energy

- Oil and Brent


There are two grades of crude oil that serve as benchmarks for other oil prices. West Texas

Intermediate comes from and is the benchmark for the United States. Brent North Sea oil

comes from Northwest Europe and is the benchmark for global oil prices. The price of a

barrel of WTI oil is $7/b lower than Brent prices due to U.S. oversupply. In December

2015, the difference was just $2/b. That was right after Congress removed the 40-year ban

on U.S. oil exports, when their prices used to have a predictable seasonal swing. They

spiked in the spring, as oil traders anticipated high demand for summer vacation driving.

Once demand peaked, prices dropped in the fall and winter.

Major producers in 2017 (Million tons):

1. Usa: 571

2. Saudi Arabia: 561,7

3. Russia: 554,4

Warning



22

4. Canada: 236,3

5. Iran: 234,4

6. Iraq: 221,5

7. China: 191,5

8. UAE: 176,3

9. Brazil: 142,7

10. Venezuela: 108,8

Represent the70% of world production.

At the beginning of October, the price of oil had risen to $ 85 a barrel, prompting some

analysts to assume it could reach up to $ 100 a barrel by the end of the year. But President

Trump’s new sanctions on Iranian oil, have turned rapidly market sentiment from fears of

a supply shortage to concerns about a glut in the timespan of three months. Furthermore,

oil stockpiles in the developed nations are rising again. From October up to now, the Brent

followed a decrease trend, and as of writing, Brent’s low was 62 $ per barrel, a 27% fall

since the record of the beginning of October.

As oil prices have fallen, Saudi Arabia's Energy Minister Khalid al-Falih has said that he

sees the need to cut oil output by one million barrels per day from its October production

levels, but traders are eyeing a break below $50 a barrel next month. The September spike

beat the May 10, 2018, record of $80/b. That spike occurred two days after the United

States pulled out of the Iran nuclear agreement and reinstated sanctions. Prices have been

supported by the November 30, 2017, OPEC meeting where members agreed to keep

production cuts through 2018. Now the OPEC producers are waiting the meeting scheduled

on December 6 in Vienna to talk about a 1.4 mbpd cut, which could even not be enough,

and the cartel might need the help of Russia which produces just a third of what the group

does and isn't happy to lose its market share.

The outlook for global oil demand growth is basically unchanged at 1.3 mb/d in 2018 and

1.4 mb/d in 2019, as a weaker economy will be largely offset by lower oil prices. Eeven

though the macro-economic outlook is uncertain since the United States remains

committed to reducing Iranian oil exports to zero from the 1.8 mb/d ; there are concerns as

to the stability of production in Libya, Nigeria and Venezuela.

The main producers, Russia, Saudi Arabia and the United States, all see output at record

levels. Total non-OPEC production in August, was 3.5 mb/d higher than a year ago, with

the United States contributing to an extraordinary 3.0 mb/d. Russia's crude output has hit a

new record of 11.4 mb/d, suggesting that it could produce even more. According to the

Short-term Energy Outlook by the U.S. Energy Information Administration, the predict

WTI price could be anywhere between $53/b and $83/b by February 2019. Prices have

been volatile thanks to swings in oil supply.

Analysts forecast that the price of Brent Crude Oil will average $82 per barrel next year,

$85 per barrel in 2020 and $89 per barrel in 2021, $91 per barrel in 2022. These forecasts

are higher than the Bloomberg consensus for Brent, which forecasts the commodity to

average $75 per barrel in 2019, $72 per barrel in 2020, $70 per barrel in 2021 and $66.2

per barrel in 2022. The outlook on Brent is broadly bullish, driven by rising constraints on

the supply side. Loss of exports from Iran, low inventories, limited spare capacity and

continued under-investment in the sector will drive the market into deficit from 2020. By

Warning



23

2025, the average price of a barrel of Brent crude oil will rise to $85.70/b (in 2017 dollars,

which removes the effect of inflation). An important risk for the rise in global demand is a

possible escalation of the trade war between the US and China. A trade war is bad for

global economic growth and global trade. Prices will rise and demand for oil may fall under

pressure.

U.S. production of shale oil and alternative fuels, such as ethanol, began increasing in 2015.

The EIA estimated that U.S. fuel production averaged 11.4 million b/d in October 2018. It

beat the previous U.S. record of 9.6 million b/d set in 1970. Production averaged 9.4

million b/d in 2017, and 10.9 million b/d in 2018. The average will be 12.9 million b/d in

2019.

The International Energy Administration predicts that the United States will become the

world's largest oil producer by 2023 and the U.S. oil industry will grow enough to meet all

of its domestic demand. By 2022, the United States will become a net energy exporter. It

has been a net energy importer since 1953. Oil production will rise until 2020, when shale

oil production will level off at around 12 million b/d. Shale will make up 65 percent of

U.S. oil production.

The biggest growth market when it concerns crude supply is the US. The US (shale-) oil

production doubled to almost 11 mb/d in recent years. the US crude production is expected

to increase in the coming years. The International Energy Agency (IEA) expects a

continued growth towards 11.9 mb/d at the end of 2019. This extra supply can easily be

absorbed by the market if demand continues to increase as expected. The biggest problem

for a rise of US crude exports is infrastructure.

The current capacity to transport crude from the production basins to the US coasts in order

to export this crude is running almost at maximum levels. There are plans to expand this

infrastructure, but it will take years. As a result, the export capacity will hardly increase in

2019 and thus increased US crude production will only lead to higher inventories. US shale

oil will therefore hardly contribute to prevent a shortage on the global oil markets. We

expect that the Brent/WTI spread will increase in 2019. In 2020 new infrastructure

becomes available which will make US exports grow and reduce the price difference

between Brent and WTI.


Analyzing the RSI index, we can see that it has slightly exceeded the "overbought"

condition (above 70) on 30th November: this provides us with a sell signal. Last time the

index exceeded this limit was two years ago, during the summit of the OPEC organization

in Vienna, 2016.

Warning



24

Analyzing the ROC, we see that over the last 3 year the indicator has crossed repeatedly

the critical level of 1. We can see how during the first six months of each year it shows a

downward trend, falling below 1 (negative trend), and then an upward one in the second

half of the year, reaching a peak of at least 1,1 (positive trend).

The daily chart shows the initial positive trend during the summer and the negative one

starting at the beginning of October.

0

10

20

30

40

50

60

70

80

90

100

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

RSI - Oil

0.60

0.70

0.80

0.90

1.00

1.10

1.20

1.30

1.40

1.50

08/01/2016 08/07/2016 08/01/2017 08/07/2017 08/01/2018 08/07/2018

Momentum ROC - Oil

Warning



25

On October 2nd, the price peaked at 85$ per barrel, but since then it dropped more than

25%, closing at 60$ on November 28th. The news of Qatar leaving the OPEC cartel after

50 years will probably be a bullish signal so a rebound is expected for the next two weeks.

The 5 periods moving average provides a bearish signal on a short-term perspective.

Weekly prices have reached the line upwards, but then they have fallen repeatedly. The

moving average will follow the negative trend working as a dynamic resistance level. A

negative trend started at the beginning of October when the moving average was crossed

downwards.

50

55

60

65

70

75

80

85

90

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Supports and Resistors - Oil

50

55

60

65

70

75

80

85

90

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Moving Average - Oil


Warning



26

- Natural Gas


The global natural gas market is expected to grow substantially over the next few years.

Stricter environmental regulations will gradually force the replacement of outdated energy

sources, such as coal, and increase the demand for alternatives. Gas is the strongest

candidate: in the U.S., production is expanding due to technological advancements in

extraction methods, domestic demand is strong, and infrastructures are already in place.

Since gas is significantly cleaner and more versatile than oil, it is widely used for residential

heating, industrial processes and electricity generation.

Gas already provides 22% of energy usage worldwide and is expected to increase its

importance especially in developing economies, with China alone accounting for 37% of

the increase in demand to 2023. Shale production surge in the last 10 years led to a looser

supply-demand balance and less volatile prices, making gas a more attractive and

affordable source for power generation: domestic demand will experience a long-term

growth, especially in the industrial sector which will account for 40% of the forecasted

increase, outpacing residential consumption and electricity generation (26%).

Higher imports from emerging economies such as China, which faces early signs of

environmental sensibility, will provide a significant boost to the already expanding Liquid

Natural Gas (LNG) market, where the U.S is the leading exporter. Other promising markets

are South-Eastern Asian countries, thanks to higher gas use in industrial processes and as

feedstock for chemicals and fertilizers.

In the last decade, gas prices in the U.S have been more stable compared to the highly

volatile 2000-2008 levels. After a peak in June 2008 ($13.7/MMBtu), a demand collapse

triggered by the economic recession cut the benchmark Henry Hub spot price; since then,

the continuous increase in shale production has been keeping the price within a $1.62-$6.4

range, stimulating LNG exports and a long-term consumption growth. In the short term,

the main driver of U.S gas futures price is the demand for residential heating, which is

highly weather-sensitive: it is typically low during spring and summer and rises

dramatically in winter. As production is stable throughout the year, the recurrent supply

surplus is put into storage to meet short-term peaks of consumption; if inventories appear

depleted, or if the weather is unusually cold, prices can show strong upward fluctuations.

At the moment, due to a combination of higher exports and climatic events during the first

half of the year, inventories appear to be at their lowest level since 2005. EIA estimates

that U.S. natural gas storage inventories are 16% lower than both the 2017 level and the

five-year average for the same period. This explains the recent volatility in gas prices as

concerns about an early cold appeared: on November 14th Nymex 1-month futures gained

18% in a single day, reaching a 4-years-high at $4.837/MMBtu.

The previous peak of volatility occurred in early 2014, when a sustained cold winter pushed

the price to $6.480/MMBtu in February. Back then, prices remained relatively high until

inventories were refilled to a sustainable level thanks to record-level production growth,

settling at $2.47 in April 2015.

This time, the fact that the supply shortage happened in early winter is more concerning. If

an extreme cold materializes during the season, short-term contracts could see additional

Warning



27

upward volatility and approach the previous peak levels around $6/MMBtu; on the other

hand, any temperature rise above the colder-than-normal expectations could lead to a steep

drop in gas prices.

As the recent upward spike has been probably generated by fears of insufficient

inventories, rather than by a severe climate, February-March spot prices will likely be

lower than the current expectations which are respectively $4.379 and $4.13. Futures

contracts with longer expiry date already expect a declining price for Henry Hub: climate

will determine the steepness of this decline.

In both cases, just like in 2014, strong supply will put downward pressure on prices in

2019: U.S. natural gas production is forecasted to increase by 11% in 2018 at an average

of 83.2 billion cubic feet (bcf) per day, setting a record level. Production will further reach

89.6 bcf/d in 2019, according to the EIA.


The Relative Strength Index just ceased to show an "overbought" signal, which confirmed

the positive trend in action. Right now it is around 50, so it is not providing any useful

indication.

The momentum/Rate of Change indicator shows that the strength of the ongoing positive

trend is fading. This highlights the correction that happened after prices reached a

maximum at around $2.85. A new upward movement is likely to begin soon, as the

indicator is still around 1, but there is a strong level of uncertainty.

0

20

40

60

80

100

120

RSI - Natural Gas

Warning



28

Daily, we see a positive trend starting from September 2018. A key support area is $2.7:

after prices bounced from this level in late October, the positive trend accelerated and

peaked at $2.85. This price represents the first resistance that the trend could breach within

few weeks. As long as the price will stay above the dynamic support line showed in the

figure, the trend will continue to be positive.

The moving average provides a bullish signal on a medium-term perspective. Daily prices

have crossed the line upwards; the moving average will follow the positive trend working

as a dynamic support level. A positive trend started the last time the moving average was

crossed upwards (September 2017), lasting until January 2018. Considering that the

0.6

0.7

0.8

0.9

1

1.1

1.2

10

/04

/20

15

10

/06

/20

15

10

/08

/20

15

10

/10

/20

15

10

/12

/20

15

10

/02

/20

16

10

/04

/20

16

10

/06

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16

10

/08

/20

16

10

/10

/20

16

10

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16

10

/02

/20

17

10

/04

/20

17

10

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/20

17

10

/08

/20

17

10

/10

/20

17

10

/12

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17

10

/02

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18

10

/04

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18

10

/06

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18

10

/08

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18

10

/10

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18

Momentum Roc - Natural Gas

2.55

2.575

2.6

2.625

2.65

2.675

2.7

2.725

2.75

2.775

2.8

2.825

2.85

30/07/2018 30/08/2018 30/09/2018 31/10/2018

Supports and Resistors - Natural Gas

Warning



29

intersection happened in August 2018, we can expect a bullish market for at least a couple

of months from now.

Precious Metals

- Gold


The gold price started the year quite bullish, but it turned bearish during the summer time

due to June’s Fed interest rate hike. After a slight rise in September and October its price

had at the beginning of November the worst week in almost three months, caused by Fed

interest-rate rise expectations and a stronger dollar. The highest price recorded this year is

1356,15$ per ounce, while the minimum has been 1175,29$ per ounce. The mean during

the last twelve months is 1272,17$, against the 2017 average price of 1257$. Gold demand

is divided in five main groups: Jewelry (the highest share of the demand), investment

(divided in bar and coins demand and gold-backed ETFs), central banks and other

institutions, technology. Global demand was 964.3 tons in the Q3 of 2018, unchanged from

Q2. In the Q3 Jewelry demand rose by 6% driven by Chinese and Indian market. A

significant outflow from gold-backed ETFs in the Q3 has been balanced by a rise in Jewelry

demand, driven by Chinese and Indian markets, a highest central banks net purchase and a

growth of the technology industry demand.

Even if Q3 demand didn’t change from Q2 Gold mine production rose in Q3 by 1.9% y-o-

y, to 875.3 tons. Well above the quarterly average of the last 5 year of 809.8 tons. If in the

last quarter the gold demand will remain unchanged this asymmetry could imply a decrease

in gold price at the begin of 2019.

2.45

2.5

2.55

2.6

2.65

2.7

2.75

2.8

2.85

2.9

30/07/2018 30/08/2018 30/09/2018 31/10/2018

Moving Average - Natural Gas


Warning



30

Any Gold price forecast is challenging because there are a lot of variables that might play

a role. Moreover, gold has traditionally done well under different conditions. Gold can rise

because of fear, but to rise in the long term there must be some rising real rates.


After the first two week of august in which gold has been oversold, the RSI never goes

down again below the value of 30. It never riches the overbought bound even if its level

has been higher than 60 for almost a month starting from the second week of October. The

level fluctuated between 40 and 65 since the end august until now.

The ROC didn't show a negative trend, neither positive, going never over the 1,1 and the

0,9 bounds. Like silver, the ROC of the last 15 days is slightly positive, and this confirm

the positive correlation between the two precious metals. Considering the absolute changes,

momentum values of the last six months computed on 10 days goes from -38,8 (worst) to

+43,3 (best).

0

10

20

30

40

50

60

70

RSI - Gold

0

0.2

0.4

0.6

0.8

1

1.2

1.4

Momentum ROC - Gold

Warning



31

In the short-term gold price shows resistors lines with two different slopes and it is caused

by the great fall of the price in august. Since then the trend has become positive and the

slope of the resistor is positive. Support line has a slightly positive slope because after the

august fall there wasn't any other important decrease in the gold price.

The linear moving average has seen different important fluctuations. Since June 2016 the

gold price raised until September 2016 and it stared a downward that finished in March

2017. Since the price stared again to grow in a relative more shaped way until March 2018.

Gold price is today changing again its trend after the decrease of the last 9 months.

1160

1180

1200

1220

1240

1260

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Supports and Resistors - Gold

1120

1140

1160

1180

1200

1220

1240

1260

1280

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Moving Average - Gold


Warning



32

- Silver


Silver price decreased since January 2018, when the highest price 17,52$ per ounce has

been recorded. Since then the silver price turned bearish reaching the lowest level of 14,03$

at the beginning of November.

Compared to gold, silver demand is so much larger. For example, 2017 silver demand has

been around 28848,5 tons against of 4071.7 tons of gold. The major areas in which silver

is required are Jewelry, investment (coins and bar), silverware, and a wide set of industries

such as electronic and electrical, brazing alloys and solders, photography, photovoltaic and

others. The use of silver in the industry is massive and it covers more than half of the total

demand.

More than gold, silver price is affected by industrial demand and, in particular, the

photovoltaic industry that implies a correlation between silver and energy price.

Global silver industrial fabrication demand returned to growth in 2017, increasing 4%. This

was the first rise in silver industrial fabrication since 2013. This growth was bolstered by

another year of impressive photovoltaic demand, rising 19% in 2017, the result of a 24%

increase in global solar panel installations. Brazing alloy and solder silver fabrication

recorded a 4% annual rise, boosted mainly by solid growth from China and Japan. The

surge in electronics, most notably in semi-conductor fabrication demand, led to the

electrical and electronics segments delivering the first annual increase in offtake in this

category since 2010. Demand for jewelry and silverware both increased respectively of 2%

and 12%.

Silver supply is mainly divided into miner production and scarp supply. Silver mine

production fell by 4,1% in 2017, experiencing its second consecutive annual decline. Silver

scarp supply fell as well, making its sixth successive annual decline.

The gold/silver ratio is increased a lot during the year. It is around 85 when at the beginning

of the year was 77. We expect that the ratio will decrease in the future because it is the

highest level ever seen.

Even if the nature of gold and silver demand is different, silver remains exposed to the

same macroeconomic risk factors impacting the precious metals so leading indicators for

both are quite similar.

• Real rates: Fed decided to pause interest rate hikes to help the labor force to grow, this

will imply a slight increase of inflation in the future. So, interest rate will increase again in

2019 but inflation as well so the two effects will balance each other making difficult give

a forecast for both gold and silver price.

• Commitment of traders: after this summer and the first week of November the gold price

is not only historically low, but it is even exceptional. It broke the support level, so it

suggests that the downside in the gold price is extremely limited now. We expect that this

will imply a rise in the gold price in the next months. Silver price as well had a negative

trend during all the 2018 so we can expect an increase in the next months.

Warning



33

•USD: It seems that in the recent past gold and silver price are highly negative correlated

with US dollar, so its price will rise as the USD become weaker.


The RSI index has shown a quite fluctuant trend in the last six months. In August and

September silver RSI broke the lower bound of 30 becoming oversold for three times and

ii is due to the decrease in its price n October. Actually, the RSI level is around 40, far from

the upper bound of 70 and in the last month it moved between 50 and 40.

The ROC didn't show a negative trend, neither positive, going never over the 1,1 and the

0,9 bounds. Anyway, the silver ROC of the last 15 days is slightly positive. Considering

the absolute changes, momentum values of the last six months computed on 10 days goes

from -0,753 (worst) to +0,524 (best).

In the short term, between July and September, the Silver price has a consistent negative

trend, and this implied an important negative slope of the resistors line in those months.

0

10

20

30

40

50

60

70

RSI - Silver

0.6

0.7

0.8

0.9

1

1.1

1.2

1.3

Momentum ROC - Silver

Warning



34

The slope continues to be negative but less than before thanks to a less volatility of the

price since the second part of September. The support slope is almost null and based on it

we don't expect the price will fall more than how it has done in September and in the second

week of November.

The linear moving average has shown just one important positive trend starting from

January 2016 for almost 7 months, the price declined and reduced its volatility. A negative

trend started in July 2018 and since then silver price didn’t recover yet even if the moving

average is now flat.

13.5

14

14.5

15

15.5

16

16.5

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Supports and Resistors - Silver

12.5

13

13.5

14

14.5

15

15.5

16

16.5

02/07/2018 02/08/2018 02/09/2018 02/10/2018 02/11/2018

Moving Average - Silver


Warning



35

III – Forecasts and Comments

Forecasts and conclusions

The report produced is an analysis conducted by students and therefore it is not reliable as bank or research

institute produced reports. Given the data, time and energy constraints, our work is still a good proxy of

what is going on and could be used as a proxy of the real markets for those commodity futures.

In conclusion, we think that the underlined ETF will grow in the next six months and it will be trained by

the energy sector (oil and natural gas). Even if recently Qatar left the OPEC, the Russia – Saudi Arabia

agreement and the reducing of supply will again push up the prices. Our forecasts are based on the

fundamental and technical analysis conducted through the report.

With the Asset Management Division of Minerva, we will test our conclusions considering the Investco

ETF inside the passive component of our virtual portfolio.

Date post:	05-Jul-2020
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