Keep Your Eyes On Commodity Prices Heading Into May

The Perfect Storm for Commodities: Geopolitics, Energy Transition and the Shortage of Everything

A long list of the world’s most powerful Wall Street banks have described the current economic climate as “The Golden Age of Trading”.

This comes as no surprise, given today’s highly macro-driven backdrop is fuelling one of the greatest wealth creation opportunities of our lifetime.

According to Economist at the World Bank, the days of Commodities serving as a major deflationary force are nearing an end – due to an ever-growing list of bullish macro tailwinds including persistent geopolitical tensions, the energy transition to global demand outstripping supplies.

Conclusive evidence shows that we are now at a critical juncture where the world simply cannot produce enough essential metals, energies and agriculture to meet demand – an unprecedented phenomenon being dubbed as “the shortage of everything”.

All of this ultimately means one thing – the downside for Commodities remains limited and prices can only head in one direction from here.

And that’s up!

Inflation Concerns Intensify as Commodities Rally and Economy Slows

That’s bullish news for Commodity traders, but bad news for Jerome Powell and his colleagues at the Federal Reserve who are gathering this week for their latest FOMC Monetary Policy Meeting.

Traditionally, there has always been a strong correlation between Commodities and Inflation. When Commodity prices accelerate, so does Inflation.

Interestingly, a string of U.S inflation reports during the first three months of 2024 have all come in above estimates, fuelling concerns that inflation could prove more difficult to conquer than previously thought.

On top of that, economic growth during the first quarter unexpectedly slowed, rising at an annualized pace of just 1.6% – the weakest pace of growth since the second quarter of 2022 when the economy contracted.

Put another way, that’s a steep slowdown following a 3.4% gain in the fourth quarter of 2023 and 4.9% in the quarter before that.

That combination of economic stagnation and stickier-than-expected inflation is what’s known as “Stagflation”. According to data tracked by GSC Commodity Intelligence – Google searches of the term “Stagflation” are currently at the highest level seen in over two years. Which Leads Me to The Big Question:

Is Stagflation Making a Comeback or Is It Already Here?

Only time will tell. However, to quote analysts at GSC Commodity Intelligence – “regardless of whatever scenario plays out from here, it certainly won’t take much for Commodity prices to move significantly higher in this current economic environment”. That’s welcoming news for the bulls, but painful for anyone sitting on the sidelines, who must now decide how much FOMO they can handle.