Commodity Price Movements

Energy & Metals in 2024: What the Rankings Reveal The latest performance rankings tell a clear story about global commodities—and the macro forces shaping them. Here’s what stood out: 1. Gold (+28%) and Silver (+28%) lead the pack. • Safe-haven demand remains strong as investors navigate geopolitical risks and inflation. • Central banks, especially in emerging markets, are boosting gold reserves. • A potential pivot toward lower interest rates in 2024 is lowering the opportunity cost of holding non-yielding assets. 2. Crude Oil (+13%) remains resilient. • Demand is rebounding, led by emerging markets like China and India. • OPEC+ continues to manage supply, stabilizing prices amid global uncertainty. • For bond markets, stable oil prices mean reduced inflation pressures—a positive for rates. 3. Industrial Metals show mixed results. • Aluminum (+6.6%) and Copper (+5%) are supported by the green energy push. Think EVs and renewables. • But China’s property market challenges are capping demand. • Slowing industrial activity signals weaker growth, boosting safe-haven bonds. 4. Oversupply pressures hit Nickel (-6.6%) and Iron Ore (-8.5%). • Increased production, especially in Indonesia, weighs on nickel prices. • China’s stimulus hasn’t fully offset its construction slowdown, impacting iron ore. 5. Natural Gas (-32%) and Steel (-17%) are the weakest performers. • Mild weather has softened gas demand in Europe and the U.S. • Global construction activity remains subdued, hitting steel prices. The Bigger Picture These commodity trends are signals of where the global economy is headed: • Central banks could shift toward rate cuts as inflation eases. • Slowing growth boosts demand for safe-haven fixed income assets—government bonds and high-quality credit. • Emerging markets with fiscal support may offer opportunities, especially in energy and commodities. As commodities move, so does the broader macro narrative. 2024 could be a year of opportunity for fixed income markets as growth moderates and rates stabilize. #Commodities #FixedIncome #MacroOutlook #Investing #Markets2024

The chart below portrays a predicament that is progressively becoming the centerpiece of the demand argument for commodities. Despite the recent upsurge in construction spending, commodity producers have evidently fallen short of matching this trend. Capital expenditure in natural resource industries has remained near historically low levels, especially when adjusted for GDP. It is important to bear in mind that changes in the supply curve of commodities typically align with the capital spending behavior of underlying producers, albeit with a significant lag effect. Essentially, it requires time for investments to translate into increased supply. The current scarcity of capex among these producers, juxtaposed with the upsurge in construction expenditure fueling material demand, ,in our analysis, portends significantly higher commodity prices to balance these markets in the face of these structural supply constraints. Significantly higher prices, in our view, will be necessary to incentivize new capex investment, and it will take many years before these new supplies come on stream in a significant enough way to alleviate pricing conditions. It has been taking a decade or more on average to bring a new discovery into production in today’s global anti-mining climate given the environmental and social licensing, government permitting, and capital-raising challenges.

Gold is hitting new highs — and agri commodities are right behind it. This chart shows the price trend of an equal-weighted basket of agricultural commodities (soybeans, wheat, corn, cattle, coffee, etc.) versus gold. And something big is happening: they’re moving together — sharply upward. Gold is often seen as a hedge against inflation. Agri commodities? They’re often a signal of inflation. So when both are breaking out at the same time, it’s worth asking: Is inflation quietly creeping back into the system? Whether it’s driven by supply chain realignment, geopolitics, climate shocks, or wage pressures, this dual surge challenges the prevailing narrative of a disinflationary future. We’ve spent two years trying to convince markets that inflation is "under control." But the market — through gold and food — might be starting to disagree. Watch this space. Because if agri + gold = anything, it’s often macro regime change.

The World Bank Commodity prices Outlook Commodity prices are expected to decrease by 5 percent in 2025 and 2 percent in 2026, after softening 3 percent this year. This would lead aggregate commodity prices to their lowest levels since 2020. The projected declines are led by oil prices but tempered by price increases for natural gas and a stable outlook for metals and agricultural raw materials. The Brent crude oil price is projected to average $80/bbl in 2024, before slipping to $73/bbl in 2025 and $72/bbl in 2026. Thus, from their 2022 high, annual average oil prices are expected to decline for four consecutive years through to 2026, settling just slightly above their 2021 level. The possibility of escalating conflict in the Middle East represents a substantial near-term upside risk to energy prices, with potential knock-on consequences for other commodities. However, over the forecast horizon, longer-term dynamics—including decelerating global oil demand, notably in China; diversifying oil production; and ample oil supply capacity held by OPEC+—suggest sizable downside risks to oil prices, especially if OPEC+ unwinds its latest production cuts. There are also two-sided risks to industrial commodity demand stemming from economic activity. On the one hand, concerted stimulus in China and above-trend growth in the United States could push commodity prices higher. On the other, weaker-than-anticipated global industrial activity could dampen them.

Commodity Financial Flows – State of Play 2025 As we enter 2025, discretionary hedge funds have ramped up their bullish stance on crude, with WTI in particular seeing a significant addition of new long positions from speculators. CTAs have also been net buyers across the oil complex, establishing modest net-long positions in both WTI and Brent. The preference for WTI over Brent is driven by strong stockdraws at Cushing and renewed focus on US macro risks following the Fed meeting and ahead of Trump's inauguration. In European natural gas markets, hedge funds maintain significant long positions in TTF futures, driven by the lack of Russian gas flows into Europe. However, discretionary fund positions have been trimmed since early December. Despite strong inventory draws, TTF prices are starting the year on a weak footing, risking CTA selling and potential profit-taking from discretionary positions. Discretionary funds ended the year long in Henry Hub futures, with CTA and ETF flows amplifying weather-driven volatility. Metals futures flows are mixed, with CTAs expected to support precious metals while selling industrial metals. Discretionary funds trimmed long positions in LME and precious metals, yet copper equity ETFs saw strong inflows in late 2024, despite bearish pressures from broad commodity ETF outflows and high inventories. The strong USD continues to challenge copper prices, but discretionary funds remain net long in both LME and CMX copper benchmarks. In agriculture markets, CTAs have started the year selling most major contracts. Discretionary funds hold large net long positions in live cattle, lean hogs, coffee, and sugar, while maintaining large net short positions in soybean meal and SRW wheat. The most significant shift in late 2024 was in corn, with discretionary hedge funds closing a 350k net short position, now sitting relatively flat. We cover all commodity market financial flows including futures, options, and swaps, at the daily frequency, in exceptional granularity through our Quant Analytics service. See here for more details: https://lnkd.in/e2Khwn_q

The potential breakout no one’s talking about. While everyone’s fixated on rates and tech valuations, the real risk might be forming quietly in the commodity complex. The Invesco DB Commodity Index (DBC), a broad proxy for energy, metals, and agriculture, is coiling just under long-term resistance after a multi-year consolidation. If this breaks higher, it would confirm a structural bottom stretching back nearly a decade… with massive implications: • Oil and commodity prices rising = renewed inflation pressures • Fed cuts priced in? Maybe not so fast • Real assets and value could outperform while long-duration assets (tech, growth, bonds) get hit • The “disinflation trade” everyone’s anchored to might be on borrowed time In short, a sustained commodity breakout could flip the 2024–2025 narrative on its head, from “soft landing” to “stagflation 2.0.” Few are positioned for that. #Macro #Commodities #Inflation #Markets #Investing