Past volatility in the market has decreased in recent weeks, driven by the completion of the US presidential election,the settling of things China and the progress in vaccinations globally. The Bloomberg Commodity Index return has increased but, within a larger trend, crude oil has risen and gold has fallen back slightly.
So the question is “Which commodity markets should investors consider?”.
Commodities traders watched for the outcome of the US election as uncertainty about the results raised questions about the direction of the markets. But with Joe Biden approving another US economic stimulus package this has pushed down the value of the US dollar and broadly lifted commodities prices.
Supply concern has been the main driver in certain markets, with executive orders on the pipelines affecting oil prices, and falling inventories lifting copper prices to near seven-year highs.
The current Covid-19 vaccine is raising expectations of a return to normal economic activity but, given the time it will take to distribute worldwide, the impact on commodities demand is likely to take effect in 2021 and is supporting futures prices.
The copper market has climbed to an extreme high as demand from its top consumer China has recovered following its Covid-19 lockdown. Copper on the US Comex exchange has risen, up from $2.10 per pound at the low last March and the market is likely to find near-term support for continued gains.
Going forward, this will keep a solid foundation for most base-metals markets. Prices will also find support in the dollar’s trend. A weaker dollar in 2021 makes metals cheaper for non-dollar holders and supports the prices.
The oil market has had a roller coaster year, with a price war increasing supply and driving down prices before the Covid-19 pandemic hit demand.
The US benchmark West Texas Intermediate price briefly turned negative and was trading in a range around $30-40 per barrel recently. The market broke out late last year, but after the meeting of OPEC and its partner countries we see oil as a good pick.
This is creating an opportunity for investors to profit by shorting the oil market.
Precious metal prices have risen since early last year as investors work to hedge their portfolios against potential market uncertainty with safe-haven assets and Covid-19 lockdowns still mildly disruptIng mining production. But the platinum market remains at a lower level as demand from the automotive sector, where it is used in catalytic converters, was hit hard by lockdowns.
With an oversupplied market and potentially lower investment demand, the price is likely to fall back, presenting an opportunity to take a short position and profit from the decline.
US-traded cocoa has increased since late last year, as key producers Ivory Coast and Ghana have added a premium on supplies from the 2020-21 season to finance a living wage for workers.
Hershey, responded by sourcing large volumes from the futures exchange late last year instead of the physical market. As a result, prices jumped slightly.
But with new stabilization early 2021 we see Cocoa as a very good investment.