Comments of the Day
21 April 2020
Video commentary for April 20th 2020
Eoin Treacy's view
A link to today's video commentary is posted in the Subscriber's Area.
Some of the topics discussed include: WTI crude oil trades at huge contango ahead of May expiry, natural gas, uranium, nickel, wheat steady, stock market susceptible to consolidation, bonds steady, China deploys additional stimulus.
Oil Plunges Below Zero for First Time in Unprecedented Wipeout
This article from Bloomberg may be of interest to subscribers. Here is a section:
The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory -- minus $37.63 a barrel. That’s right, sellers were actually paying buyers to take the stuff off their hands. The reason: with the pandemic bringing the economy to a standstill, there is so much unused oil sloshing around that American energy companies have run out of room to store it. And if there’s no place to put the oil, no one wants a crude contract that is about to come due.
Underscoring just how acute the concern over the lack of storage is, the price on the futures contract due a month later settled at $20.43 per barrel. That gap between the two contracts is by far the biggest ever.
“The May crude oil contract is going out not with a whimper, but a primal scream,” said Daniel Yergin, a Pulitzer Prize-winning oil historian and vice chairman of IHS Markit Ltd.
Eoin Treacy's view
The May contract expires tomorrow and as of today was still trading 108,593 contracts that will need to roll or be delivered. That’s going to result in massive trading losses for anyone looking to roll and the incredible decline today suggests a surge for the exits among traders.
Email of the day on mean reversion risk in precious metals:
Good afternoon Eoin, I am enjoying the daily video and the written commentaries. Regarding your medium and long-term view that the price of gold is and will be reflecting the increasing and competitive debasement of currencies, but that presently gold is in an overbought phase, please explain what you would consider the maximum drawdown in gold to undo the overbought situation.
Would that imply that gold should e.g., give up about $170 (10%) and reach approximately $1530 which I believe is the 200 SMA? Same question for silver. In what time frame do you expect the undoing of the overbought situation for gold (and silver) to happen? Days, weeks, months? How quickly would the bull market resume?
It seems that the script of the last financial crisis is happening at 4-5 times the speed of 2008/2009...) What likelihood do you see that governments and central banks in the end will intervene (on an international scale) to either confiscate or prohibit the private holding of gold and silver and/or otherwise make sure that the nuisance of gold and silver as uncontrolled non-fiat money disappears? Roosevelt and others like Hitler, Soviet Union already proved that this can be successfully implemented ...Second addition to my first message/questions: To what extent did the rally in stocks trigger yesterday's and today's downdraft in the PM sector? Thank you!
Eoin Treacy's view
Thank you for this series of questions which may be of interest to subscribers. The mantra that delivers the best returns is “don’t pay up for commodities” and that applies even in a bull market. Gold and the precious metals generally are prone to volatility and often posted failed upside breaks. Chasing the market higher will only work on the relatively rare occasions when the trend accelerates; whereas more often than not precious metals trends adopt a sawtooth profile.
Email of the day on the spread between Comex futures and London spot gold prices:
Hi Eoin, could you please comment on the pricing discrepancies between Comex and spot? It is playing havoc with the Gold ETFs which are not reflecting the underlying as well as they should be.
Eoin Treacy's view
Thank you for this question which may be of interest to other subscribers. Speculation about what exactly is causing this arbitrage is running hot in the media. The lack of liquidity among market makers, the shortage of refined gold, the break in shipping schedules for the metal and fears about counterparty risk among London bullion banks are all contributing to the historically wide spread.
Email of the day on the lead time to develop a vaccine
Eoin, you are an optimist. I hope you will be proven right! for another point of view read the article from today's New York Times: "The Coronavirus in America: The year Ahead". One factoid: the record time for producing a vaccine is 4 years, for mumps.
Eoin Treacy's view
Thank you for this email and I agree the New York Times article certainly paints a gloomy picture of potential success rates with developing vaccines. I thought the most useful portion of the article was to highlight just how patchy information relating to the COVID-19 virus really is.
Email of the day on uranium
Thanks for the insightful video, as always, Eoin. Have you had a look at the uranium sector lately? The spot price has jumped along with the miners, including Cameco and Denison which jumped 26% yesterday. Is the long-awaited supply crunch coming into play and how long will the uptrend last? Your thoughts on this will be appreciated.
Eoin Treacy's view
Thanks for this question which may be of interest to subscribers. The shutting down of both transportation and some mining operations has created a short-term supply shortage which is supporting the outperformance of uranium. It’s the number one best performing commodity this year but the supply shortage is unlikely to last beyond the lockdown phase of the virus-induced recession.
Eoin's personal portfolio - Last updated March 27th
Eoin Treacy's view
One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided.