Wild swings in the currency markets had a limited impact on the Bloomberg Commodity Index which traded close to unchanged this past week. Despite negative interest rates the Japanese yen surged to its strongest since October 2014 and this helped put pressure on high interest currencies such as BRL, ZAR and even the AUD. 
In Europe, worries about Brexit continue to put pressure on the both sterling and the euro while in the US, a cautious Federal Open Market Committee further reduced market expectations about higher interest rates. 
Despite being unchanged on the index some major moves happened within the different sectors. Strong gains in oil and natural gas helped the energy sector take the top slot while industrial metals slumped on concerns that Chinese demand would not be enough absorb rising supply. A survey among miners and traders at an industry conference in Chile forecast that copper could be 14% lower in a year’s time.
The currency turmoil also translated into weaker stocks, which helped support precious metals. Gold, after finding support, went looking for resistance. The positive impact on precious metals from negative interest rates was highlighted in a recent report from the World Gold Council.
Sugar and coffee had a bad week with supply news and fluctuations of the Brazilian real putting the price of both under pressure. Raw sugar, down 14% since its March 24 peak, has been hit particularly hard on speculation that Brazil’s state-controlled oil company Petrobras may cut gasoline prices. Such a move could reduce demand for ethanol thereby increasing the global availability of sugar.
Oil markets continue to gyrate as confusion about what theme is the most important rages on. Overall the market recovered strongly after two weeks of losses on a surprise drop in US inventories. This more than offset worries that the April 17 meeting in Doha between Opec and non-Opec producers may fail to deliver the hoped-for production freeze. 
Overall traders are increasingly convinced that a low has been established and the current collapse in the contango on Brent crude does indicate investment demand at the front of the oil curve while producers have stepped up hedging (selling) activity further out. 
A collapsing contango, especially in Brent crude, will attract new investors as it sharply reduces the pain of holding long positions. The flip side of this is the increased risk that it will trigger increased supply as storage plays by oil companies and trading houses are being abandoned. 
Millions of barrels of oil are currently being stored onshore and offshore by oil companies and traders as storage plays. The contango, which reflects the discount between spot crude and a future time, is a reflection of an oversupplied market. It has offered great rewards to those being able to buy spot crude, store it and then sell it in the futures (forward) market at a higher price. This transaction can be repeated as long the contango is steep enough to cover the cost of storage and insurance, something that has now disappeared. 
Apart from the collapsing contango, which is attracting investors into crude oil, the US Energy Information Administration in its weekly inventory report delivered a dose of oil-supportive news: Inventories dropped instead of the expected rise and this was driven by 1) a big drop in imports 2) rising demand from refineries and 3) production falling for the tenth time in 11 weeks. 
The US inventories are just weeks away from beginning their annual decline as refineries ramp up demand to fill the tanks with summer gasoline ahead of the driving season. The surprise fall last week happened a bit early and we would expect to see another few weeks of rising inventories before reaching the turning point. 
The US inventory report is the only report currently providing the global market with an up to date take on supply and demand. The strong price reaction to this report during the past three weeks where we have seen two price negatives followed by one positive clearly highlights the continued importance of this weekly update in a sector where timely numbers are hard to come by.
Following several days of losses, Brent crude oil found support at its 100-day moving average at $37.30 (first month cont.) and the US inventory report then supported a move back above $40. Investors are clearly chasing the market and the collapsing contango has added extra support. Global markets remain oversold which still raises the question of this being too much too soon. 
Next week the market will increasingly be focusing on the Doha meeting on April 17 as well as the usual US inventory report. A move back to the recent highs cannot be ruled out but as we stated in our quarterly outlook released this past week: “Our preferred range for the coming quarter remains unchanged from Q1 at between $35-40/b but no longer with the risk skewed to the downside”. Following its January surge, gold has now been trading sideways for almost two months. During this time the market has been contemplating whether the strong surge in investor demand witnessed since the beginning of the year could lead to profit-taking.
This is a particular concern given what happened last year, when gold followed a strong start with a sudden reversal in April. The sell-off continued for the remainder of the year, marking one more false start among the many seen since the peak in 2011.
One of the main reasons for the belief that this time will be different was highlighted in the latest market update from the World Gold Council. The implementation of negative interest rates by central banks in Europe and Japan has seen trillions worth of sovereign government debt move to negative yields. 
To this, the WGC writes “history shows that, in periods of low rates, gold returns are typically more than double their long-term average”.
Among the investments increasingly popping up as alternatives to no-yield bonds are precious metals. The WGC highlights the following four reasons why negative interest rates will structurally increase demand for gold as a portfolio asset: 
Reduces the opportunity cost of holding gold, limits the pool of assets some investors/managers would invest in, erodes confidence in fiat currencies due to the threat of currency wars and monetary intervention and further increases uncertainty and market volatility as central banks run out of effective policy options to combat inflation/deflation and/or spur growth. 
After finding support below $1,210/oz on numerous occasions, gold made a renewed attempt to the upside this week. This has been particularly aided by the latest FOMC minutes, where caution about raising US interest rates was a prominent topic of discussion. 
The first-quarter US earnings season kicks off next week and following a strong rally since February, the market is bracing itself for the worst season since the 2009 crisis. In our quarterly outlook released earlier this week, we highlighted the upside potential for gold following a period of consolidation. A weaker dollar (most recently against the JPY), the risk of rising stock market volatility, and the continued focus on negative interest rates may attract renewed interest for gold and silver earlier than expected. 
In the short term we see two important resistance levels. First of all there is $1,245/oz, which apart from being the recent top also represents a 50% retracement of the March selloff. A break above the more important $1,255 area – the 61.8% retracement – would signal a return to the high and potentially beyond. The key area of support remains between $1,165/oz and $1,195/oz.


Ole Hansen is head of commodity strategy at Saxo Bank.