Commodities Report: May 29 — June 2, 2023
As the market nears the end of the month of May 2023, Gold continues to emerge as the most in-demand asset classes. The IMF points out that Gold can provide investors with added value of protection from inflation and global shocks, making it the number one go-to asset for all types of investments promising long-term high ROI.
Silver and Agro commodities are the second and third most in-demand asset classes. However, the longer term value edge in commodities trading and investing is in agriculture, because people will always eat forever, making agro commodities price and recession proof. So, a more balanced investor portfolio should include Coffee, Sugar, and Cocoa. For instance sugar prices have spiked, currently 450% up from their 2020 lows.
In total, the precious metal market recorded a net inflow of $5.9 billion, indicating the largest inflow since the GFC in 2008.
Year till date, 27 major commodities (including energy, metal and soft) have recorded an average increase of 200%+ from previous year-end value.
Precious Metals rise in value, despite major macroeconomic issues
a. There is the banking crisis that led to the collapse of 3 banks, since Washington Mutual in 2008. The Fed called up the post-2008 regulatory framework, by setting up an emergency lending program to shore up the system and guard against bank runs and failures.
b. Now, the issue of the failure to raise debt ceiling, which is expected to cause recession and result in loss of many jobs. Simply put, the US has spent more than they have, given their year-on-year budget deficit levels of $193 billion (Mar 2022) and $378 billion (Mar 2023).
Boomerang — The *US post-COVID-19 spending leading inflationary pressures. It is expected that the debt issue will affect not just the US but the global market as well.
Table 1. Inflation rates across selected countries
Event Highlights
According to a survey released by Bloomberg, 81.7% and 75.7% of professional and retail investors said they will buy Gold, if the US defaults on its debt, in comparison to 14.0% and 15.1% for Treasury with the rest of the surveyed investors choosing to buy Yen, Swiss Franc and Something Else respectively.
Just Crude Oil
WTI is currently at $72.52 bpd while Brent crude is $76.77 bpd per barrel. We may begin to see supply tighten due to price fluctuation, as uncertainty builds over the US debt ceiling talks.
Figure 1. Crude Oil Trend
Note: This is not a buy and hold market as banks struggle to retain deposits. Market swings opening up opportunities for traders to make money.
Some macro data releases ahead;
· June 7 2023 U.S. International Trade in Goods and Services, April 2023.
· June 13 2023: May Consumer Price Index (CPI) report to be released by the Bureau of Labor Statistics (BLS).
Definition of Terms
· GFC — Global Financial Crisis of 2008
· IMF — International Monetary Fund
· Fed — The Federal Reserve System is the central bank of the United States
· Professional/Institutional Investor — a company or entity that makes investments on behalf of someone else.
· Retail Investor — an individual who invest their own money
· Bpd — Barrels of Crude Oil per Day
Redfox Analytica and Global Markets. https://www.linkedin.com/in/redfoxanalytics/
