Commodity boom

Analisi dei mercati finanziari e delle materie prime

Market Watch review. 12/05/2021

In today's release, we’ll cover the following topics:

  • Growth of industrial metals.
  • Rising gold prices.
  • Oil market ignores gasoline supply disruption.

The recovery of the global economy, as well as the active phase of the transition to the so-called "green energy" and the expansion of infrastructure for electric transport increase the physical demand for industrial metals and copper, in particular. Analysts at Goldman Sachs and Bank of America recommend buying this asset in anticipation of long-term growth. Due to the transition to green technologies around the world, the trend in the industrial metals market may last for a decade.

It is important to remember that today's financial markets are much more reactive to the prospect of changes in real physical demand than to the very fact of its change. I will try to explain.

The speculative component, that is, the money of traders and investors who do not plan to buy a physical asset, but only want to earn much more from price changes than real buyers. Accordingly, if they expect an increase in physical demand, the price will rise, but only until they begin to doubt it.

Since we are talking about metals, we will not leave aside gold, which has also significantly increased in price since the beginning of the month. The breakthrough of the psychological and at the same time technical resistance level of $1,800 per ounce provoked a fairly strong wave of growth. The weak dollar and lower US government bond yields remain the key drivers of growth. At the same time, the statement of the US Treasury Secretary and former head of the Federal Reserve Janet Yellen, that interest rates may rise slightly to prevent the economy from overheating, puts pressure on gold, keeping it from more powerful growth. However, the still bullish scenario remains a priority.

And now let's move on to the black gold market. Most likely, everyone already knows about the cyberattack on one of the largest pipelines in the United States, in connection with which the gasoline shortage on the East Coast has sharply increased. Nevertheless, the oil market reacts with restraint to this event. There was a very similar reaction to the closure of the Suez Canal by a huge container ship. Based on this, it is already possible to say that big traders and investors are ready to ignore short-term changes in physical supply and demand, focusing on the longer term.

At the moment, it is still difficult to say, but already now we are getting the first signals indicating the stabilization of the oil market. Let me remind you that the quotes of US WTI oil are held near the highs of the previous two years – the maximum values before the pandemic. Given all this, there is a fairly large risk of the formation of a wide sideways trend in the medium term. And only a break in oil prices above $67.5 per barrel will allow us to count on further growth to $75 – the maximum values since 2018.

Closely monitor the news background and be prepared for all the surprises of the market.


Analyst

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