Gold prices slid 2% on Monday, as a broad commodities rebound kicked in with less focus on prospects for a Middle East conflict escalation, reducing demand for the metal as a safe-haven.
Commodity trends: Gold trading opportunity
Spot gold fell to $2,354.61 per ounce by 1148 GMT, tracking other markets where risk appetite has been higher, with US gold futures falling 2.4% to $2,357.00.
Gold had hit its highest levels since November on rising tensions between Iran and Israel, and so yesterday’s dip is likely to have been prompted by the easing of those tensions, which played a part in curbing the safe-haven trades that have been supporting gold since last Thursday.
Commodity trends: Global tensions
Tehran’s moves to minimise the damage caused by an Israeli drone strike this week helped calm nerves, and the move fits with the commodity cycles that usually see gold retreat when investor confidence in risk assets returns.
Commodity trends: oil prices ease
With the start of a new week, equities rebounded, oil prices and bonds eased a bit, signalling a reversal of the flight to defensive positions that became evident at the end of last week.
Another contributing factor to the temporary reversal of commodities that diversify portfolios is expectations for the Friday release of the PCE report on US personal consumption expenditure, a key indicator of the pace of inflation, which in turn will impact expectations for tighter interest-rate policy.
Commodity trends: Silver, platinum drops
Influencing the commodity direction further, spot silver dropped 4% to $27.51 per ounce and platinum fell 1.1% to $921.60, while palladium also dropped 2.2%, to $1,004.31.
Heraeus Metals analysts said demand risks for platinum remain if European economic growth is worse than expected.
Such price movements in precious metals are illustrative of broader commodity movements, where confidence in geopolitical stability and economic indicators establish and reinforce the behaviours of investors and the markets at large.
Commodity trends: prices move above $86 a barrel
Global crude benchmark Brent eased on Monday, with prices above the $86-a-barrel level, as market attention returned to inflationary pressures rather than geopolitical tensions in the Middle East that had not hit oil supplies.
By 1020 GMT, Brent futures had fallen 55 cents to $86.74 a barrel. Markets had returned to broader economic concerns affecting commodities.
Commodity trends: oil trading insights
The front-month U.S. West Texas Intermediate (WTI) crude contract for May, expiring on the same day, fell 33 cents to $82.81 a barrel in thin trading, while the more actively traded June contract dropped 52 cents to $81.70 a barrel.
Prices spiked earlier in the day after explosions shook the Iranian city of Isfahan, which some analysts attributed to an Israeli attack but Iran later played down, averting a possible escalation in regional hostilities.
This is the underlying message of commodity booms in which geopolitical risk dissipates rapidly if actual supply holds.
Commenting on this, the oil strategist Giovanni Staunovo at UBS noted that ‘a high spare capacity in key oil-producing countries’ could mean that any disruption would be temporary and sapped of its power to impact on oil futures.
Commodity trends: Middle East conflict
That’s important because, as we saw, abundant supplies of the major crude grades have meant that Middle Eastern conflicts, while sometimes causing extreme anxiety, have done little to raise oil prices, which have largely been driven by the broader commodity trend that prizes supply stability.
The most recent factor nudging oil markets is growing concern over the economy, particularly inflation.
The echoing remarks of several Federal Reserve officials, not to mention last week’s surprising inflation data, were enough for Wall Street to quickly trim a projected three-quarter percentage point rate cut to less than half of that for the Federal Reserve’s next meeting.
Commodity trends: Diamond exports
India’s exports of cut and polished diamonds plunged 27.5% in the year to March to $15.97 billion as squeezed buying abroad weighed down the market.
Exports to all major markets — the US, China, the United Arab Emirates — slumped, with India, the world’s leading diamond polisher, importing 18% less rough to match the fall in demand, according to data from the Gem and Jewellery Export Promotion Council (GJEPC).
The figures, released on Monday, are in tandem with other commodities on the global market, which have been hammered by slow consumer demand, high inflation and interest rates.
In anticipation of a market recalibration that would reflect the new realities, the industry could not wait to see when commodity trends would shift.
Voluntarily, it decided to ban rough diamond imports from 15 October 2023 for a period of two months, to correct demand-supply imbalances and which, in the March quarter, had a positive impact on polished diamond prices.
Vipul Shah, the chairman of the GJEPC, remarked.
And in addition to that, Shah said the GJEPC was in talks with global diamond miners to step up investments in promoting diamonds and diamond jewellery, in markets including the US, China, the Middle East and India.
The move is part of a push to stimulate demand at a time when other commodities face similar challenging trends.
At the same time, India’s exports of plain gold jewellery rose by 61.5% to $6.79 billion over the same period, largely thanks to a doubling of shipments to the United Arab Emirates.
This spike reflected the impact of the India-UAE Comprehensive Economic Partnership Agreement.
It also showed that, while the diamond trade sector continued to struggle, commodity trends for gold jewellery had improved.
The year started with hefty rises in some commodity trends in the first quarter of 2017 in China, when imports of iron ore rose a robust 17.6% and domestic production of the key ingredient of steel-making also took off, even as output of crude steel, a leading indicator of industrial activity, skidded by 1.9% to 256.55 million tons from a year earlier.
Commodity trends: Iron ore supply
While iron ore supply moves higher, steel production weakens. This makes the commodity trends story more complicated.
Dominated by China, which accounted for more than 70% of the global seaborne volumes of iron ore in 2015, the nation’s imports increased 5.5% to 310.13 million metric tons in the first quarter.
At the same time, China’s domestic iron ore output jumped 15.3% to 37.7 million tons.
However, the slowdown in steel output has led to an inventory of iron ore at Chinese ports, as commodity trends continue to realign.
As of mid-April, those stockpiles eased back from a 23-month high, illustrating the tightrope walk that commodities are still undergoing in response to the ongoing slowdown.
This iron-ore commodity trend is a result in part of China’s traders (and steel mills) following their usual behaviour of opportunistic strategic buying, motivated by bullish expectations for economic growth, and by the need to rebuild low stocks.
The iron-ore commodity trend is also reflected by dynamics in the price of the iron-ore futures, with a powerful late-2020 rally, some more recent retreats, and a slight recent recovery.
Going forward, Chinese iron ore imports and steel output will offer important macro trends as their projections are directly linked to the production mix in an important resource market.
Beijing says it plans to continue to manage steel production around the 1 billion ton-per-annum level, but the iron ore market could see adjustments.
Iron ore imports could stabilise, unless there are adjustments to the iron ore supply-side that increase production rates or add to inventory levels, or both.
All of this is contingent on the general economic picture, not just in China, but also based on sectoral developments in the economy.
From electric vehicles to power infrastructures, artificial intelligence and automation, total copper consumption is likely to grow by at least 10 million metric tons over the next 10 years, according to an estimate by the commodity trader Trafigura, with technology being the major driver.
A solar panel made of crystalline silicon uses about four times more copper than a typical household electrical appliance.
At Trafigura, Graeme Train, a metals expert and the global head of analysis in charge of the commodities business, told me that ‘about a third of this new demand is driven by electric vehicles, another third from electricity generation, transmission and distribution, and the balance is spread across automation, factory capex [capital expenditure] and data-centre cooling’.
This growth in data centres is strongly linked to AI alongside other trends in technology and energy transition, in general commodities.
The surge in copper demand is already beginning to be reflected in commodity price trends: according to research by the World Bank, increased production in electric vehicles, solar panels and grid investment – especially in China – is driving up copper use in power generation and construction, causing prices on the London Metal Exchange (LME) to recently hit two-year highs of $10,000 a ton.
Tightening commodity trends are also illustrated by the copper complex, which has seen supplies seriously constrained by the more than 35% draw-down in LME registered stocks since October last year, with further disruptions such as the shuttering of the Cobre mine in Panama last year adding to the supply woes.
These fundamentals are boosting copper’s upward price momentum.
With production and pricing in a constant state of flux, analysts are revising their forecasts based on tweaks to production estimates and shortages in the market, currently pegged at around 26 million tonnes this year.
Train also believes that copper demand will get a boost from continued industrialisation and urbanisation in emerging markets – the per capita use of the metal in India is still very low compared with China and the developed world.
Copper’s centrality to the trends in global commodities is clear, especially as economies convert to new sustainable, high-tech paradigms.