① Prices of commodities such as gold, copper, oil, and cocoa have generally risen in recent years; ② This round of gains has driven the commodity trading industry to achieve historic profits; ③ Traders say that shortages of raw materials and macroeconomic uncertainty are key reasons for the rise in commodity prices.
AFP, April 15 (Editor: Huang Junzhi) Commodities have seen strong gains so far this year. In addition to gold, other raw materials are also dazzling. Commodity trading has been booming in recent months, according to Apex Trader Funding CEO Darrell Martin, and everything from industrial metals to oil is heating up.
“These market swings create so many opportunities that are amazing for traders. It gave them lots of opportunities to enter the market and generate revenue in this way.” he said.
Driving this round of gains is a sharp rise in various physical raw materials, which has enabled the commodity-based S&P Goldman Sachs Commodity Index (GSCI) to rise 12.8% this year, easily surpassing the S&P 500's 7% increase. According to media reviews, this triggered the most profitable period in commodity trading history. Since 2022, the four major private commodity trading companies have made a net profit of 50 billion US dollars.
“This is a typical rise in the late commodity cycle,” said Jeff Currie, an analyst at global investment firm Carlyle. “We are watching global economic growth. Industrial production has bottomed out, and it is beginning to expand. This was achieved in the context of low inventory rather than large amounts of idle production capacity.”
Overall, market experts believe there are two key factors behind the strong rise in the commodities market:
Inventory shortage
Insufficient supply is a central issue driving up the prices of commodities such as copper and cocoa.
Bank of America wrote in its latest report: “The copper supply crisis has arrived. “Tight copper supplies are increasingly constraining refined copper production: the much-discussed shortage of copper projects is finally starting to have an impact.”
The bank said it is expected that by 2026, the price of copper will hit $5.44 per pound, up 27% from the current $4.28 per pound.
The metal has risen 11.6% so far this year, and both Currie and Martin have linked this boom to a post-pandemic rebound in production. However, according to Bank of America, copper is also the center of energy transformation, and as artificial intelligence data centers expand, copper will further benefit.
Cocoa is in a similar situation, with droughts and poor harvests soaring this raw material to record levels. Cocoa futures prices have risen 256% over the past 12 months, reaching a record price of $10,900 per ton.
Some media commentators say that although this may seem like a bad luck for producer countries, climate change may cause future shortages of agricultural products. Coffee beans may face the same fate.
Uncertainty in the global economy
Although the imbalance between supply and demand also affects crude oil, the unstable macroeconomic outlook is another factor affecting the rise of oil and gold.
Martin said the price of gold has risen by nearly 15% so far this year, although part of its success is due to poor performance in 2023. Last Friday, the price of gold reached another record high, reaching $2,424 per ounce.
Sticky inflation, large-scale central bank purchases, and geopolitical turmoil have all boosted this “safe haven.” For these reasons, Martin expects the price of gold to quadruple in three to five years.
Although other estimates are less bold, analysts such as Ed Yardeni (Ed Yardeni) and David Rosenberg (David Rosenberg) expect gold to rise by 50% and 30%, respectively, in the next few years. Adney also predicted that if the Middle East conflict escalates, the price of Brent crude oil will reach $100 per barrel.
While 2024 is a boon for commodity traders, some have warned about the macro effects of soaring prices. Market experts say that rising commodity prices will cause inflation to soar again, thereby reducing the possibility that the Federal Reserve will cut interest rates.
Currie said, “If they cut interest rates, [commodities] will still rise; but since commodity prices are high, they won't cut interest rates. So from a commodities perspective, this is a win, and this comes back to my point of view that commodities are always the best option at this stage of the business cycle.”
Editor/Somer