The commodity market concluded a tough year marked by pricing difficulties and intense selling pressure.
The increase in COVID-19 cases following China’s removal of pandemic measures raised risk perceptions in the commodity market. Additionally, the Federal Reserve (Fed) officials’ verbal guidance and concerns about a recession were significant factors putting pressure on the commodity market last year.
The effects of concerns that the world’s leading central banks could apply “hawkish” policies for a longer period than expected were felt throughout the year.
Uncertainties about the Chinese economy also stood out in the commodity market. Troubles in the global banking sector and uncertainties about monetary policies led to product-specific differentiations.
The crisis in the U.S. debt limit, the dilemma of inflation and recession, and geopolitical risks caused sharp fluctuations in the commodity market.
Developments related to the Israel-Palestine conflict were also among the significant factors affecting the commodity market.
Expectations towards the end of the year that the Fed’s interest rate hikes were coming to an end provided support to the commodity market. However, concerns about global economic activity could not overcome the selling pressure in the commodity market.
Notable Decline in Palladium Last year witnessed a downward trend in precious metals, excluding gold. Gold completed the year with a 13.14% increase, silver with 0.6%, platinum with 7.4%, and palladium with a 38.6% loss.
Palladium tested its lowest level since August 2018 at $924.26 in 2023.
The per-ounce price of gold achieved an all-time high annual closing at $2062.74.
The per-ounce price of gold rose after three years, supported by “dovish” expectations related to the Fed, geopolitical risks, and the decline in the dollar index.
Expectations that central banks could start “dovish” monetary policies in 2024 strengthened, especially with the indication that the Fed might cut interest rates in 2024 and the released data supporting hopes of a “soft landing” in the economy.
Fed Chair Jerome Powell, in his statement at the latest interest rate decision meeting, expressed the belief that the policy rate in the tightening cycle is likely at or near its peak. Despite not favoring further increases in interest rates, Powell indicated that they did not want to rule out this possibility.
The strengthening of “dovish” expectations supported the per-ounce price of gold, while the decline in bond yields continued to suppress the alternative cost of gold.
Despite completing 2022 at 3.88%, the U.S. 10-year Treasury yield, which exceeded 5%, finished 2023 almost at the same level, at 3.8810%.
On the other hand, concerns about the potential expansion of the Israel-Palestine conflict increased demand for safe-haven assets.
Increased demand during the wedding season in India, the Christmas period in the Western world, and the arrival of the new year in China also played a role.
The per-ounce price of gold, which reached a record level of $2145.12 during the year, increased by 13.11% in 2023, reaching $2062.74, achieving the highest annual closing of all time. Gold thus made investors happy after three years.
Analysts mentioned that ongoing uncertainties regarding Taiwan in China highlighted the safe-haven feature of gold.
Measures taken by Asian central banks to protect their currencies also supported gold. Concerns about a slowdown in the global economy in 2023 also supported gold. Concerns and uncertainties about the risk of a global recession and the course of monetary policies positively affected the per-ounce price of gold.
News that the People’s Bank of China continued to increase its gold reserves and investors turned to safe-haven gold after the bankruptcy of SVB and Signature Bank also contributed to the high performance of gold.
Ongoing concerns about global economic activity continued to negatively impact palladium prices.
On the other hand, the increasing demand for electric vehicles also led to a decline in palladium prices.
Analysts pointed out that palladium is used in the production of catalytic converters in cars. With the increasing demand for electric vehicles, predictions that demand for conventional vehicles could decrease gained traction, and concerns about demand for palladium came to the forefront.
Palladium was among the commodities most affected by recession concerns globally. Concerns about a global surplus led to a decline in palladium prices.
As interest rates increased and economic slowdown began to be observed, this slowdown affected both the automotive sector and demand in other areas.
With electric vehicles becoming more prominent, products used in the automotive sector changed, and demand for palladium decreased accordingly.
Ongoing concerns about the Chinese economy also adversely affected palladium.
Except for copper, sharp declines were seen in base metals Looking at base metals, copper gained 1.8% in over-the-counter markets last year, while lead fell by 12.7%, aluminum by 15.9%, nickel by 44.6%, and zinc by 17.8%.
Copper reached its highest level since June 2022, with $4.29 last year.
The slowdown in global economic activity highlighted demand concerns in base metals. The decline in the manufacturing industry in China affected base metals. The decline in base metals, especially the increasing recession concerns in Asia, was also effective.
Weak global demand, along with investors’ sensitivity to industrial metals, exerted pressure on both industrial metals and prices.
Stimulus for the housing sector in China following the relaxation of strict COVID-19 restrictions increased demand, especially for copper. Concerns about supply also came to the forefront in copper.
Issues faced by Canada-based First Quantum with the copper mine it operates in Panama triggered supply concerns. The European Union (EU) designated copper and nickel as strategic metals in the European Critical Raw Materials Act. The EU’s decision positively reflected on copper.
The crisis faced by workers on strike at the Las Bambas copper mine in Peru and the news that First Quantum Minerals could end its operations in Panama also highlighted supply concerns in copper, among the factors causing prices to rise.
Negotiations between Chinese smelters and miners for low processing fees for deliveries in 2024 increased supply concerns in copper.
Despite hoping for changes in the Chinese economy, concerns about a global recession, which emerged with the bond market’s inverted yield curve, continued to affect copper.
Copper’s rise in 2023 is also attributed to expectations that global economies will grow at a slower pace and copper demand will decline, while copper supply will be limited.
Although the decline in China’s manufacturing activities affected aluminum and zinc, the housing sector’s support for aluminum was remarkable. The use of aluminum in the construction sector and the automotive industry was effective in providing support.
Copper’s rise in 2023 is also attributed to expectations that global economies will grow at a slower pace and copper demand will decline, while copper supply will be limited.
Although the decline in China’s manufacturing activities affected aluminum and zinc, the housing sector’s support for aluminum was remarkable. The use of aluminum in the construction sector and the automotive industry was effective in providing support.
Global uncertainties, especially the Russia-Ukraine conflict, increased the demand for safe-haven metals such as gold and silver. However, the decline in economic activities and the possibility of a global recession affected the base metals market negatively.
Silver, which is known as the “poor man’s gold,” ended the year with a 0.6% increase.
Despite the uncertainty about the course of global economic activities, silver attracted attention as a safe-haven asset. The silver market, where the balance of supply and demand was closely followed, experienced fluctuations throughout the year.
Concerns about the U.S. debt limit crisis affected the demand for silver. The growth in demand for silver in industrial products, especially in the technology sector, was remarkable. The automotive industry’s demand for silver also contributed positively.
However, concerns about a global economic downturn and the decline in industrial activities put pressure on silver.
Expectations about the pace of the U.S. economic recovery also affected silver. The uncertain course of inflation and the risk of a global recession continued to create volatility in the silver market.
Silver, which is among the metals that experienced the most price volatility last year, achieved the highest level in February with $28.84. Despite fluctuations throughout the year, silver managed to close 2023 with a 0.6% increase.
Outlook for 2024
Analysts suggest that the commodity market will continue to be influenced by factors such as global economic activity, central bank policies, geopolitical risks, and the developments in the China-Taiwan situation.
The resolution of the Israel-Palestine conflict, the course of the Russia-Ukraine conflict, and the global response to the COVID-19 pandemic will also play a crucial role in shaping commodity prices in 2024.
Investors are advised to closely monitor developments in key areas such as energy, precious metals, and base metals, as these sectors are expected to be particularly sensitive to changes in market conditions.
The evolving landscape of global trade, advancements in renewable energy, and geopolitical events will be key determinants of commodity market trends in the coming year. As uncertainties persist, a proactive and well-informed approach will be crucial for navigating the complex dynamics of the commodity market in 2024.
souce: aa.com.tr / prepared by Melisa Beğiç