Source: Golden Ten Data

Recently, the commodity exchange market has been extremely hot, and Apex Trader Funding CEO Darrell Martin (Darrell Martin) said that prices of various commodities, from industrial metals to oil, have continued to rise.

Martin said, “These large price fluctuations have created a large number of opportunities, leading to a significant increase in intraday trading volatility, which is extremely beneficial to traders and provides them with plenty of opportunities to generate income in this way.”

Underpinning this round of gains is a sharp rise in a large number of physical materials, which has driven the commodity-based S&P GSCI to rise 12.8% this year, easily surpassing the 7% increase in the S&P 500 index. According to foreign media data, this is the most profitable period in commodity trading history. Since 2022, the top four private trading companies have netted 50 billion US dollars.

Jeff Currie (Jeff Currie) of Carlyle Group said in an interview last Wednesday: “We are now in a classic upward phase at the end of the commodity cycle. Global economic growth has shown that industrial production has bottomed out and begun to expand; this is happening against the backdrop of low inventories and limited idle capacity.”

Market experts pointed out that there are two key factors behind the strong trend in the commodity market.

Inventory shortage

Tight supply is the main reason driving up the prices of commodities such as copper and cocoa.

Bank of America released a report entitled “The copper supply crisis has arrived.” The report stated: “Refined copper production is increasingly limited by tight mine supply: the long-discussed shortage of mining projects is finally beginning to come to light.”

Bank of America expects the price of copper to reach $5.44 per pound by 2026, which is 27% higher than the current price of $4.28 per pound. Copper prices have risen 11.6% so far this year, and both Corey and Martin believe this is the result of a rebound in production in the post-pandemic era. According to the Bank of America, copper is also the core of the energy transition, and will benefit further as artificial intelligence data centers expand.

Cocoa is in a similar situation. Drought and poor harvests have caused the price of this raw material to soar to a record high. Cocoa futures prices have risen 256% in the past 12 months, and are now at a record price of $10,900 per tonne. A recent article in foreign media pointed out that although this may seem like a misfortune for producer countries, climate change may actually cause more shortages in agriculture in the future, and coffee beans may also face the same fate. The price of this commodity has risen sharply this year.

Uncertainty about the macro outlook

The volatile macroeconomic outlook is an important driver in shaping the gains in oil and gold.

Gold prices have risen nearly 15% so far this year, Martin said, partly due to poor performance last year. “Gold always lags behind, and once it starts to rise, the price will soar sharply,” he said. Gold reached a new high last Friday, hitting $2,424 per ounce.

Continued high inflation, large-scale central bank purchases, and geopolitical turmoil have boosted this safe-haven asset. For these reasons, Martin predicts that the price of gold will quadruple in the next three to five years. While other predictions aren't as bold, analysts like Ed Yardeni and David Rosenberg (David Rosenberg) expect gold to rise 50% and 30%, respectively, over the next few years. Yardeni also expects Brent crude to rise to $100 per barrel if the Middle East conflict intensifies.

Although commodity traders have gained a lot in 2024, there are also warnings that soaring commodity prices will have an impact on the macro environment. Market experts said that rising commodity prices will lead to a new rise in inflation and reduce the possibility that the Federal Reserve will adjust interest rates.

Cory said, “If the Federal Reserve cuts interest rates, commodity prices will rise, but they will not cut interest rates because commodity prices rise. So from a commodity perspective, this is a win-win situation. Going back to my previous point of view, commodities are always the best investment choice at this stage of the business cycle.”