Is The Pullback In Gold A Buying Opportunity?

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Published: Jan 17, 2024, 19:13 GMT+00:00

After an explosive end to 2023, that saw Gold hit an all-time record high of $2,152 an ounce, prices have pulled back this month as trader’s bank windfall profits – ready to capitalize on the precious metals next big move.

Unraveling Commodity Opportunities Amidst Market Turmoil and the Red Sea Crisis

These big market moves have presented savvy traders with a series of highly lucrative opportunities to profit from the recent macro-driven rally as well as the huge price reversal that has subsequently followed.

The great news is that this trend is here to stay and set to continue throughout the rest of 2024 – which is why a long list of the world’s most powerful Wall Street banks are describing the current economic climate as “The Golden Age of Trading”.

Recent developments in the Middle East, particularly disruptions to commercial vessels in the Red Sea have raised concerns about the risks of an increase in energy prices that could fuel a resurgence in inflation – forcing central banks around the world back into “hawkish” mode.

The escalating number of attacks on commercial vessels in the Red Sea has pushed shipping costs up by more than 600% – hitting businesses hard with higher freight charges, longer lead times and a shortage of containers.

On Friday, Oil prices soared above $80 a barrel for the first time in 2024 – as the world’s shipping giants stopped sending their container-packed ships through the Red Sea and diverted their vessels on a long route around Africa’s Cape of Good Hope.

Going around southern Africa is more than 6,000 kilometres longer and can add $1 million in fuel costs and take around 34 days in journey time, compared to the Red Sea, which usually takes 25 days. These factors alone, have significantly increased the odds of a supply chain crisis similar to the one that snarled the global economy after the pandemic.

According to data compiled by GSC Commodity Intelligence – approximately 21,000 vessels annually pass through the Red Sea, carrying essential Commodities such as Crude Oil, Liquefied Natural Gas, Coal, Base Metals, Softs and Grains. The recent attacks by Yemen-based Houthi rebels has led to more than 90% of ships getting rerouting away from this critical route.

Put another way, that’s over $200 billion worth of Commodities, which has been diverted so far. Supply shocks of this magnitude in an already fragile system can have catastrophic consequences as history has shown us.

In a note to clients, JPMorgan said that “the Red Sea crisis could have a wider domino effect on the supply chain if the situation is not resolved by end of the first quarter. A prolonged blockage could keep freight rates elevated beyond the first half of the year – which presents huge bullish tailwinds for the entire Commodities complex”.

Whichever way you look at it, one thing is clear. It won’t take much for Commodity prices to move significantly higher in this current macro and geopolitical environment. Any substantial pullbacks should be viewed as buying opportunities because prices won’t stay low for long!