𝐀 𝐂𝐨𝐦𝐦𝐨𝐝𝐢𝐭𝐲 𝐛𝐮𝐥𝐥 𝐦𝐚𝐫𝐤𝐞𝐭 𝐚𝐧𝐝 𝐧𝐨𝐰 𝐭𝐡𝐞 𝐬𝐥𝐮𝐦𝐩 𝐨𝐟 𝐥𝐚𝐬𝐭 𝐰𝐞𝐞𝐤(𝐬). 𝐓𝐡𝐞 𝐦𝐚𝐫𝐤𝐞𝐭 𝐞𝐧𝐯𝐢𝐫𝐨𝐧𝐦𝐞𝐧𝐭 𝐞𝐱𝐩𝐥𝐚𝐢𝐧𝐞𝐝
The US Federal Reserve is to blame for the recent price slump in commodities. At their most recent meeting, the monetary watchdogs were more confident about the U.S. economy than expected. 𝐓𝐡𝐞𝐲 𝐬𝐢𝐠𝐧𝐚𝐥𝐞𝐝 𝐚𝐧 𝐢𝐧𝐭𝐞𝐫𝐞𝐬𝐭 𝐫𝐚𝐭𝐞 𝐭𝐮𝐫𝐧𝐚𝐫𝐨𝐮𝐧𝐝 𝐚𝐬 𝐞𝐚𝐫𝐥𝐲 𝐚𝐬 𝟐𝟎𝟐𝟑 𝐢𝐧𝐬𝐭𝐞𝐚𝐝 𝐨𝐟 𝐚 𝐲𝐞𝐚𝐫 𝐥𝐚𝐭𝐞𝐫. 𝐈𝐧 𝐚𝐝𝐝𝐢𝐭𝐢𝐨𝐧, 𝐅𝐞𝐝 𝐂𝐡𝐚𝐢𝐫𝐦𝐚𝐧 𝐉𝐞𝐫𝐨𝐦𝐞 𝐏𝐨𝐰𝐞𝐥𝐥 𝐢𝐧𝐝𝐢𝐜𝐚𝐭𝐞𝐝 𝐭𝐡𝐚𝐭 𝐚 𝐫𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐢𝐧 𝐭𝐡𝐞 𝐛𝐢𝐥𝐥𝐢𝐨𝐧𝐬 𝐨𝐟 𝐝𝐨𝐥𝐥𝐚𝐫𝐬 𝐢𝐧 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐩𝐮𝐫𝐜𝐡𝐚𝐬𝐞𝐬 𝐰𝐚𝐬 𝐚𝐥𝐫𝐞𝐚𝐝𝐲 𝐛𝐞𝐢𝐧𝐠 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝.
The consequences on the market: Yields on U.S. government bonds shot up sharply.
Since fixed-interest securities are thus becoming more attractive for investors, the price of gold went down in return. In contrast, the U.S. Dollar was much stronger after Powell's comments. Since $GOLD is traded on the world market in the American currency, an increase in the exchange rate makes the precious metal more expensive for many interested parties and thus slows demand. The same effect with other precious and industrial metals. Copper, for example, fell 8.6 percent last week, the biggest weekly loss since the start of the Corona pandemic.
This week, some calm returned to the markets and prices of some commodities recovered. Many basic commodities, such as copper, soybeans and iron ore, have risen sharply in price over the year despite recent price declines. This has already led some market observers to say that we are experiencing the beginning of a new supercycle. This refers to a prolonged phase in which commodities become more expensive across the board.
𝐊𝐞𝐲 𝐫𝐨𝐥𝐞 𝐨𝐟 𝐂𝐨𝐩𝐩𝐞𝐫
"$COPPER is the new oil", is how analysts at DZ Bank and Jeff Currie, chief commodities analyst at investment bank Goldman Sachs, sum up their optimism. In order to achieve climate neutrality, there is only one way: copper. No other copper conducts electricity so well, so it has great strategic importance.
Almost certainly, the transformation of major economies toward sustainability will drive up demand for the reddish metal. An e-car, for example, contains five times as much copper (60 to 83 kilograms) as a vehicle with an internal combustion engine. A wind turbine with an output of three megawatts even contains up to 4.7 tons of the industrial metal.
According to estimates by the International Energy Agency, the market for critical raw materials such as copper, cobalt and some rare earths would have to grow sevenfold between 2020 and 2030 if the global community wants to achieve climate neutrality by 2050.
The demand for raw materials will increase enormously. For example, building platforms for offshore wind farms and bringing electricity ashore via massive cables -120 kilos in weight per meter-will require huge quantities of zinc, cement and copper.
𝐒𝐢𝐥𝐯𝐞𝐫 𝐟𝐨𝐫 𝐬𝐨𝐥𝐚𝐫 𝐞𝐧𝐞𝐫𝐠𝐲
$SILVER, on the other hand, is in demand for the expansion of solar energy. According to IEA forecasts, alternative energy sources will grow by an average of 3.2 percent per year. The increase in solar energy will be particularly strong at eight percent. Silver is indispensable in the manufacture of solar panels because of its very high conductivity. Photovoltaic-based silver demand has risen by a good eleven percent annually since 2014. In addition, components that rely heavily on silver are becoming important for the expansion of a global 5G network.
𝐈𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐫𝐞𝐦𝐚𝐢𝐧𝐬 𝐚𝐧 𝐢𝐬𝐬𝐮𝐞
In addition to the mechanics of demand and supply, there is a third major force acting on commodities: inflation trends, like I pointed out in my last post. 𝐓𝐡𝐞 𝐁𝐚𝐧𝐤 𝐨𝐟 𝐀𝐦𝐞𝐫𝐢𝐜𝐚 𝐡𝐚𝐬 𝐜𝐚𝐥𝐜𝐮𝐥𝐚𝐭𝐞𝐝, 𝐭𝐡𝐚𝐭 𝐟𝐫𝐨𝐦 𝟏𝟗𝟓𝟎 𝐭𝐨 𝟐𝟎𝟐𝟎, 𝐭𝐡𝐞 𝐜𝐨𝐫𝐫𝐞𝐥𝐚𝐭𝐢𝐨𝐧 𝐛𝐞𝐭𝐰𝐞𝐞𝐧 𝐜𝐨𝐦𝐦𝐨𝐝𝐢𝐭𝐢𝐞𝐬 𝐚𝐧𝐝 𝐢𝐧𝐟𝐥𝐚𝐭𝐢𝐨𝐧 𝐰𝐚𝐬 𝐨𝐯𝐞𝐫 𝟕𝟎 𝐩𝐞𝐫𝐜𝐞𝐧𝐭. In general, it can be said that prices of basic commodities perform well during periods of high inflation.
The scenario of higher inflation is currently the subject of hot and controversial debate. It cannot be ruled out. With the central banks' policy likely to remain expansive at present, the money supply will continue to expand. Inflation will therefore remain an issue. Should the inflation rates increase strongly, this would favor in particular the quotations of precious metals. I currently see a good investment opportunity here. Gold and silver have been somewhat neglected in the current commodity rally and are not trading at all-time highs.
Have a pleasant week ahead!
BR