Source: Wall Street See

Since the beginning of this year, the global commodity market has been in a state of turmoil. The S&P GSCI index surged by up to 12% in early April, but quickly plummeted afterwards, falling by nearly 1% as of September 13.

During the rollercoaster period of the commodities market, gold has undoubtedly emerged as the biggest winner. Boosted by central bank buying, geopolitical tensions, and expectations of Fed rate cuts, the price of gold has continuously hit new historical highs. However, influenced by sluggish global demand prospects, WTI crude oil once fell below $65, iron ore dropped below $90, 'Dr. Copper' plunged over 15% since its peak in May, and corn, soybeans, and other agricultural products continued to explore four-year lows.

With less than four months left in 2024, where will the commodity market head? Can gold continue to lead the pack? Will big losers like crude oil and iron ore be able to turn the tables?

As the price of gold soared, retail investors flocked to CME micro gold futures, with Citigroup bullish to $3,000.

Last Friday, the European Central Bank cut interest rates for the second time this year, while the Fed's rate cut this week is considered a foregone conclusion. Gold prices once again made history, briefly surpassing $2,580 per ounce.

As gold prices repeatedly hit new highs, retail investors have flooded into CME's micro gold futures contracts. As of September 11, the daily average volume has reached 99,527 contracts, far exceeding the peak levels during the 2020 pandemic.

With the continuous influx of retail investors, CME's micro gold electronic contracts have surged by nearly 26% since the beginning of the year.

CME is the largest derivatives exchange in the United States. Its mini gold futures contracts are mainly aimed at retail investors, providing entry opportunities for investors with limited financial strength. Compared to standard gold futures contracts, the scale of CME mini gold futures contracts is only one-tenth of the size, with lower capital investment, margin requirements, and trading costs, but can provide the same level of flexibility and security.

Looking ahead, a Goldman Sachs report earlier pointed out that due to the impact of the US debt crisis, the Fed's interest rate cut, and increased hedging demand, the gold price is expected to rise to $2700/ounce by early next year, a 5% increase from last Friday's closing price. Citigroup is even more optimistic, based on historical experience, whether it is Trump or Harris elected as US president, the gold price is expected to break through the $3000 mark by the end of this year.

Will crude oil, which has been falling continuously, have a rebound space this year?

In this year's global commodity market, crude oil bulls are undoubtedly a group of 'disappointed' people.

Last week, OPEC and the US Energy Information Administration (EIA) both lowered their forecast for global oil demand growth in 2024, leading to a sharp drop in international oil prices. WTI crude oil briefly fell below $65, hitting a year and a half low.

On the supply side, the latest data shows a slight increase in OPEC production in July compared to the previous month, causing market concerns. Jim Burkhard, Vice President of S&P Global Platts Research, recently stated at the Asia Pacific Petroleum Conference (APPEC) that OPEC+ and its allies are expected to increase oil production starting in 2025, which will be the first in several years.

Goldman Sachs, Morgan Stanley, Citigroup, and HSBC all believe that there will be a severe oversupply of crude oil next year, and the price of oil may fall to $60. Despite the long-term downside risks, Goldman Sachs sees the sharp drop in oil prices as an excellent short-term market entry opportunity for investors.

Goldman Sachs analyst Yulia Zhestkova Grigsby found that compared to the extremely pessimistic futures market, the spot market is experiencing a tight supply-demand situation due to production cuts and demand recovery. The divergence between the futures and spot markets suggests that as investors gradually return to rationality, the average Brent oil price in the fourth quarter is expected to rebound by more than 12% from this month's low point to $77 per barrel.

In the face of future uncertainties, crude oil investors can focus on the micro WTI crude oil futures contract under the CME Group to hedge against the downside risk of crude oil futures and prevent short-term upside risk. Similar to the micro gold futures contract, the CME micro WTI crude oil futures contract has a size of only one-tenth of a standard contract, providing the same flexibility and security with lower margin and trading costs.

Are put sentiment improving, is corn about to bottom out, and is soybean turning the corner?

The United States is expected to have an unprecedented corn harvest season. In late August, the price of CBOT corn futures, under the CME Group, briefly fell below $4 per bushel, close to the lows of early 2020.

Soybean and wheat are also under pressure due to the corn market's prospects for a bountiful harvest. The price of CBOT soybean futures briefly fell below 1000 cents per bushel, reaching its lowest level since mid-2020.

However, given the continuous decline in prices, Adam Davis, Chief Investment Officer of Farrer Capital, believes that the price of corn may have reached a bottom, and most of the negative factors have been priced in. The US CommoditiesFutures Trading Commission (CFTC)'s latest data shows that investors are significantly reducing their net short positions in US soybean, corn, and wheat contracts, easing bearish sentiment in the market.According to the World Meteorological Organization, global weather models are expected to transition from El Niño to La Niña by the end of this year, which may result in more extreme weather disasters. Coincidentally, a recent report released by the US Department of Agriculture stated that the proportion of soybean crops affected by drought in the US has increased by 7 percentage points, reaching 26%. The drought has caused Brazil to delay the planting season for new soybean crops, leading to four consecutive weeks of rebound in Chicago soybean futures.

Chicago soybean futures are one of the most actively traded agricultural futures globally, with an average daily trading volume of over 0.2 million contracts and a peak open interest of nearly 0.9 million contracts, providing traders with high liquidity and flexibility. In addition, all trades are conducted in centrally cleared markets regulated by the CFTC, reducing counterparty credit risk.

What about iron ore? Weak demand in Asia has dragged down iron ore, making it one of the worst-performing commodities this year, with a decline of over 30% since the beginning of the year.

Where is the future direction of iron ore heading?

Weak demand in Asia has dragged iron ore down to become one of the worst-performing commodities this year, with a decline of over 30% since the beginning of the year.

Amidst the continuous market downturn, several investment banks believe that the fundamentals of iron ore remain gloomy.

Goldman Sachs commodity trader Mark Ma previously stated that in the coming weeks, iron ore may see a 5% bear market rebound. However, in the long term, iron ore will still be in a state of structural oversupply. Unless mining companies reduce production, the market will not be able to regain balance.

Is the bear market about to end and are commodities ready to embrace a bull market?

Despite significant market volatility this year, global commodities are still at historical highs. With the expectation of interest rate cuts by the Federal Reserve, commodity prices are likely to be supported by a weakening US dollar.

HSBC's latest research report points out that the global commodities market entered a bear market cycle in mid-July. Based on historical experience, bear market cycles typically last at least 3 months, so this round may already be about halfway through, and preliminary signs of commodities transitioning from a bear market to a bull market are emerging.

Bank of America even boldly predicts a surge in structural inflation in the US, indicating that the "commodity bull market is just beginning". The institution believes that from now until 2030, commodities are one of the important areas that investors should focus on.

Jared Woodard and other Bank of America strategists emphasized in their latest report that due to the gradual weakening of the technological disruption's suppression on inflation and the continuous strengthening of deglobalization trends, the United States may soon return to the inflation trend prior to 2000, which is an annual increase of 5%.

In addition, Bank of America pointed out that the imposition of import tariffs, debt crisis, fiscal deficits, artificial intelligence and net zero policies will all contribute to inflationary pressures, and the annualized return rate of commodities may reach 11%.