Fed Says Recession Is Coming. What Does That Mean For Commodities?

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Updated: Apr 18, 2023, 06:57 GMT+00:00

Recently released Minutes from the Fed’s March Monetary Policy Meeting – revealed that several members of the Federal Open Market Committee finally admit that the economy is heading for recession later this year.

The Fed Finally Admits Recession is Coming

Policymakers are convinced that the banking crisis, which saw the collapse of several prominent banks in the United States and Europe – has ignited a sequence of events that will lead to stricter lending conditions for borrowers – triggering a global credit crunch and ultimately a recession.

In a recession, unemployment soars, purchasing power decreases and the global stock market plummets. Finding a safe place to store money becomes particularly important, which would explain why Commodities are everyone’s favourite trade once again!

Commodities Become the Safe Haven

Since the beginning of this year, Commodity prices across the board have been on an absolute tear – firmly positioning themselves as the best performing asset class of 2023.

Last week, Gold prices came in striking distance of hitting all-time record highs reached in the summer of 2020, while Silver prices raced above $26 an ounce.

Gold has been on an unstoppable run, skyrocketing from the $1,800 level at the beginning of March to above $2,060 an ounce – notching up an impressive gain of over 14%, in the past month alone.

And the rally might not stop there!

The bullish momentum has also split over into Gold priced in other currencies such as British Pounds, Euros, Australian Dollars, Canadian Dollars and Japanese Yen – sending prices skyrocketing to all-time record highs.

While the Precious Metals are getting all the attention right now, one of the best kept secrets in the Commodities sector is Agriculture.

Unlike other Commodities, the world cannot function or survive without Agriculture. Regardless of whether the overall economy is in a recession or booming, people still have to eat – making Agriculture both recession-proof and crisis-proof. These unique features have positioned Agriculture as one of the hottest asset classes of the current economic climate that we find ourselves in right now.

Unprecedented demand for safety, diversification and high returns during this period of economic uncertainty – has sent Orange Juice, Coffee and Cocoa prices surging to record highs. Meanwhile, sugar prices soared to their highest since 2011 – tallying up an impressive gain of over 150% from the 2020 lows.

According to The World Bank, Agricultural Commodities could still surge another 240% from current levels and remain elevated well into 2026.

We’re just over a quarter way into 2023 and it has already been a massive year Commodities – but this could just be the beginning of the markets best year ever since the Global Financial Crisis in 2008.