Octa research: commodity performers in 2023

Octa research: commodity performers in 2023

New Delhi [India]: Commodity trading offers investors lucrative trading opportunities. In 2023, some commodity asset categories have shown double-digit returns, and some will do the opposite. Octa, in the article, talks about commodity performers in 2023.

Trading commodities is a promising opportunity for those looking to diversify risks, protect themselves against inflation and make money using predictable price movements within a year. So, it will be interesting to find out which commodities perform best and which perform worst. But first, let’s try to understand commodities as an asset.

What are Commodities?

Commodities are the raw materials used to create consumer products, from food to furniture to petrol. Commodities include agricultural products such as wheat and cattle, energy products such as oil and natural gas, and metals such as gold, silver and aluminium. There are also soft commodities that cannot be stored for long periods, such as sugar, cotton, cocoa, and coffee.

Why do traders use commodities to generate income?

Predictability: As commodities are real assets, they tend to react to changes in external factors differently than stocks, bonds, and currencies, which are financial assets. In particular, no central bank regulator sets the rules of the game for tangible assets. Here, the law of supply and demand determines the price–a shortage of a particular commodity naturally raises its price.

Inflation defence: Changes in the prices of the main categories of commodities are the first turn of the inflationary spiral. The more significant the increase in commodity prices, the greater the increase in goods and services production costs (Producer Price Index–PPI). The growth of production costs of goods and services provokes the growth of retail prices, thus shifting the inflationary burden to the consumers (Consumer Price Index–CPI). Therefore, commodity investments can provide portfolios with inflation protection.

Cyclicality: Demand for groups of goods depends on the time of year. For example, the demand for feed grain grows twice a year–during the preparation for sowing and harvest period. Also, there is an assertion that petrol prices rise in summer when the holiday season starts. However, there is a downside–commodities may underperform during cyclical downturns in the global economy when consumer and industrial demand slows down.

Best & worst commodity performers

Almost all commodities ended in 2023 in negative territory: only gold took the crown, other metals showed negative dynamics, and most energy and agriculture commodities declined.

Gold is the leading precious metal. Copper is the best non-precious metal

Gold rose 13.10 per cent to a record high of $2,135. The rise in gold was driven by central bank purchases, which estimated 800 tonnes of gold in the first three quarters of 2023. As rate cuts in 2024 look more likely, investors are looking for a safe-haven gold asset, and the weaker dollar has accelerated this process.

Copper’s rise is driven by current demand, as it is virtually indispensable in most electronic devices, from mobile phones to solar panels.

Meanwhile, the very same factor makes palladium just as unpopular in 2023. Its main uses are catalytic converters and the automotive industry, and car sales have been declining as people keep switching to electric cars.

Lithium and nickel rank last. It’s all about the fact that their supply was extremely high in 2023. In fact, some major producers even halted production amid falling prices last year. The situation is unlikely to improve in 2024.

Energies were on a cyclical correction

Crude oil fell by almost 11 per cent due to rising aggregate supply: at the end of 2023, daily U.S. crude oil production stood at a record 13.3 million barrels per day. In addition, economic activity in China, the leading consumer of crude oil, hurt aggregate demand.

What’s on track now?

  • In 2024, moderate consumer activity weakens demand for commodities. The expected interest rate cuts by the U.S. Federal Reserve may not only be good for consumer activity–a weaker dollar will support the price of gold, which may rise even higher.
  • Lower inflation will continue to hold down the price of oil in 2024. However, if geopolitical tensions rise, the scenario could be reversed.
  • Commodities used in the green energy transition, such as nickel, copper, lithium and zinc, are trending downwards due to continued significant oversupply. Copper, lithium and zinc will also be in surplus in 2024.

Regardless of how 2024 turns out, it is clear that the commodities market offers traders a unique opportunity to make money. Octa allows its clients to trade gold–the most growing commodity, and other types of assets.

Octa Provides Expert Analysis for 2024 for Global Economic Trends and Gold Prices

Octa Provides Expert Analysis for 2024 for Global Economic Trends and Gold Prices

New Delhi [India]: According to many analysts’ forecasts, the price of gold may increase in 2024. Octa explains in the article what factors will influence the dynamics of the gold price and what will happen to the market this year.

Gold is trading above $2,000 per ounce in early 2024. Analysts expect that even later in the year, gold prices may remain above $2,000 per ounce, reaching new historical highs. Among the factors favouring this are geopolitical uncertainty, the likely weakening of the U.S. dollar, and potential interest rate cuts. But before relying on these factors in the future, we must understand how they have influenced the past.

A new scenario of gold price dynamics

For the past 90 years, the value of gold has depended primarily on the volume of transactions between the Western and Eastern markets. Western countries determined supply and demand, while Eastern countries acted as counterparties to the transaction. Thus, when the volumes of physical gold purchased by Great Britain or Switzerland increased, its price grew, and vice versa. As a result, gold moved from the West to the East and back synchronously with the price decreasing or increasing.

The second factor that has historically influenced the price is the relationship between the price of gold and the real yield on U.S. government bonds. When the real yield decreased, bonds lost their appeal, and investors moved into gold. Once the trend reversed and real yields began to rise, investors returned to bonds.

However, since the end of 2022, both patterns have failed. The U.S. ten-year bond yield rose to 4.33%, above the 2022 highs, beating a 15-year record. Despite expectations, this didn’t lower the price of gold, which instead rose from November 2022 to August 2023 by 16%, from $1,643 to $1,954 per ounce.

The correlation between gold transaction volumes and the gold price also stopped working. Since the third quarter of 2022, the UK and Switzerland have been Netto-exporters of gold, i.e. sellers. According to the historical paradigm, this should also have been a reason for the price of gold to fall. However, as we can see, this is not happening. Thus, the West has not significantly influenced the pricing of precious metals.

What affects gold in 2024?

Escalating geopolitical conflicts are causing gold to rise in value. Due to the geopolitical events of 2022, dollar assets have become more risky for many countries. Central banks in the Global South, Eastern Europe, and the Middle East have been actively pursuing a policy of building up the gold part of foreign exchange reserves since the end of 2022. According to a World Gold Council (WGC) report, central banks bought 800 tonnes of gold in the first nine months of 2023, up 14% year-on-year. Excess demand from central banks has boosted the value of gold by 10 per cent in 2023.

‘It is the central banks’ purchases of gold that will act as the main driver of growth in 2024′, said Kar Yong Ang, the Octa financial market analyst. ‘If the trend continues and the level of gold reserves moves towards an average of 40% of the gold composition in reserves, that would mean an additional $3.2 trillion in the asset–a 25% rise in 2025, which would correspond to a price of $2,500 an ounce’, he added.

Gold has also seen another rise since the beginning of the Palestinian-Israeli conflict: since October 2023, it has added more than 8%. Hence, we can conclude that any aggravation in geopolitics will have a positive impact on gold.

The stabilisation of inflation will continue to support gold quotes. In 2022, global inflation reached its highest levels in decades. However, it is also a fact that inflation passed its peak at the end of 2023. Most analysts believe inflationary pressures will continue to ease in 2024.

‘Traditionally, the gold price has been negatively correlated with the inflation rate. The lower the inflation rate, the lower the interest rates on government bonds. As a result, the relative attractiveness of non-interest-bearing assets such as gold increases’, said Kar Yong Ang.

Developing economies de-dollarisation. Investors see gold as an alternative means of building savings and protection against inflation and currency risk. Demand for gold is increasing because Brazil, Russia, India, and China (members of BRICKS) seek ways to improve their currency independence.

The main factors affecting gold’s price are inflation, rising demand from central banks, de-dollarisation of developing economies, microeconomic situation, and geopolitics. The combination of these factors will create conditions for the growth of gold price in 2024–in the first half of the year, the cost of the precious metal may exceed $2,200 per troy ounce. In the second half of the year, the upward trend in gold is likely to continue, and gold may show a price of $2,300 per ounce, so the average price in 2024 will be $2,170.

Octa is an international broker that has been providing online trading services worldwide since 2011. It offers commission-free access to financial markets and various services already utilised by clients from 180 countries with more than 42 million trading accounts. Free educational webinars, articles, and analytical tools they provide help clients reach their investment goals.

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