Will commodities make a comeback? - 2 Feb 2024 - MoneyWeek Magazine - Readly (2024)

FAQs

Why are commodities dropping? ›

Through most of 2023, commodity prices in general moderated, declining significantly from previous highs. This reflected improved supply and lagging demand, particularly for specific products such as oil and natural gas.

Commodities stand to benefit from underinvestment and the clean energy transition. PIMCO has a positive outlook for commodities based on supply constraints, the transition to a net-zero economy, and their historical correlation with inflation.

What happens to commodities in a recession? As a general rule, when economies slow, industrial outputs decline due to fewer infrastructure projects and house building, causing the demand for commodities to fall and prices to decline.

Moreover, a stronger dollar in the global market will increase the price of commodities relative to foreign currencies. The higher price of commodities in foreign currency will work to lower demand and dollar-priced commodities. In this scenario, increasing commodity prices abroad could cause domestic deflation.

Since mid-2023, however, the World Bank's index of commodity prices has remained essentially unchanged. Assuming no further flare-up in geopolitical tensions, the Bank's forecasts call for a decline of 3% in global commodity prices in 2024 and 4% in 2025.

Soft demand and sufficient supply of major food commodities to cap prices. Food commodity prices are expected to continue a downward trend over 2024, owing to moderate global demand and adequate supplies of major crops, particularly corn and soybean.

The longer-term bull market in commodities could resume in 2024. Supply will continue to be challenging as the world transitions away from traditional energy to more renewable sources of energy. Global geopolitical conflict is slowing the transition and increasing both supply and resource security risks.

Purchase Precious Metal Investments.

Precious metals, like gold or silver, tend to perform well during market slowdowns. But since the demand for these kinds of commodities often increases during recessions, their prices usually go up too.

noun. : someone or something that is highly valued or in much demand. an actor who is a hot commodity in Hollywood right now.

Do commodities do well during inflation? ›

Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services.

The World Bank commodity price index is expected to fall 4 percent in 2024, following a projected decline of nearly 24 percent in 2023, the sharpest drop since the pandemic. Energy prices are expected to decline by almost 5 percent in 2024 and remain relatively stable in 2025.

When the dollar appreciates against other currencies, commodities become more expensive on the world stage, which can depress overall demand. As consumption falls, so do prices. Flip this dynamic on its head, and you can see that a fall in the greenback might stir prices higher.

A fall in own price of the commodity leads to increase in real income of the consumer and a consquent increase in purchasing power of the consumer.

There are several factors behind the high volatility experienced by the commodity market; the key factors include the supply and demand of a commodity, currency movements, geopolitical situations, government policies and economic growth.

Primary commodity prices declined slightly between August 2023 and February 2024, driven by a decrease in oil prices. Supply growth in the Americas surprised on the upside, buffering the impact of geopolitical tensions in the Middle East.

Commodity-dependent countries often grapple with issues like slow productivity, income volatility, overvalued exchange rates, and increased economic and political instability.

Commodity money has intrinsic value but risks large price fluctuations based on changing commodity prices. If silver coins are used, for instance, a large discovery of silver may cause the value of the silver currency to plunge, resulting in inflation.