Market 05/16: Commodities unexpectedly hit new highs

Overview of the commodities market and reasons for the strong surge in rare metals prices

Commodities market continues strong growth trend

• Toronto Stock Exchange (mainly trading natural resources and commodities) grows strongly thanks to rising commodity prices, boosting the energy sector.

Reason 1: From expectations of interest rate cuts + market hedging demand

Expectations of central banks soon cutting interest rates + loss of confidence in cash and bonds have made gold and precious metals the preferred reserve assets:

• Gold price hits 2,400 USD/oz again due to signs of cooling inflation and declining retail sales. - up ~30% since October.

• Global central banks bought 289.72 tons of gold in Q1/2024, the all-time high.

  • In 2022 and 2023, central banks bought 1081 and 1037 tons of gold respectively.

• Of which, gold trading volume in China is up to 400% higher than the 2023 average.

  • In 2023, BoC bought more than 225 tons of gold.

Reason 2: Surge in industrial demand for rare metals — but limited supply / mining capacity also causes the metals market to rise rapidly!

• Compared to gold, silver rises even more strongly due to strong financial + industrial demand: Silver price has risen more than +25% this year.

• Silver market in supply deficit for 4 consecutive years and remains tight in 2024.

• Silver inventories have fallen to record lows in April.

• Nickel price also up more than +5% due to concerns over supply disruptions from unrest in New Caledonia, France.

• Iron ore price recovers thanks to real estate stimulus measures in China signaling renewed demand for construction steel:

  

• Copper price also hits all-time high due to increased demand as a conductor (EVs, data centers,…)

  • …while mining remains challenging due to political and environmental concerns.

• Countries are encouraging the construction of new copper mines to boost production.

Rising commodity prices increase inflation risks

• As Viet Hustler previously analyzed: surging commodity prices could cause inflation risks to rise again

  • Read more here.

Summary of YoY commodity price growth:

• Copper: +31%

• Silver: +22%

• Gold: +18%

• Zinc: +17%

• Aluminum: +16%

• WTI Crude: +11%

• Brent Crude: +9%

• Coffee: +6%

• US CPI: +3.4%

• Gasoline: +3%

• Natural Gas: +2%

• Wheat: +1%

• Cotton: -9%

• Soybeans: -13%

• Corn: -22%

• Sugar: -28%

Leading Economic Index LEI disappoints

• Leading Economic Index (Leading Economic Indicators - LEI) continued to decline in April, down -0.6% MoM (expected: -0.3%, previous: -0.3%)

• The decline mainly comes from consumer sentiment, new orders, negative yield spread and building permits.

• However, the LEI does not signal a recession for 2 consecutive months as the 6-month growth rate is above the warning threshold for 2 consecutive months,

Crypto market: Senate passes bill nullifying SEC's SAB121 regulation

• The bill nullifying SEC's SAB121 regulation has been passed by the Senate, allowing financial institutions to custody crypto.

SAB 121 was previously proposed by the SEC to prevent banks from custodying crypto on behalf of customers.

• Financial companies holding crypto must also record liabilities on their balance sheets.

→ Indirectly, this policy prevents financial institutions from custodying crypto.

Some other news:

1. Boeing 747 makes emergency landing in Indonesia due to engine fire shortly after takeoff.

2. Reddit allows OpenAI access to its forum data repository, enhancing content in ChatGPT.

3. Musk plans to promote data centers in China to develop safer self-driving cars.

4. GameStop stock plunges to ~20 USD in 1 week after surging over 100% due to meme stock frenzy.

• Previously, Citron Research, one of the world's largest short-selling research firms, announced it is short GameStop:

5. Microsoft launches new AI chip, integrating AMD's AI chip MI300X to compete with NVIDIA.

   • AMD rivals' stocks fall while AMD itself rises.