What to know before starting to trade commodity CFDs
2020 was an obviously tough year for most commodity markets. The Covid-19 pandemic created a widespread worldwide economic shutdown, depressing demand and disrupting supply chains for commodities in practically every sector-energy, base metals, agricultural items, and even the occasional precious metal.
Nevertheless, Gold surpassed $2,000/ounce for the first time in history in
August, rising 16.8% in US dollar terms as low interest rates made the precious
metal a more tempting investment.
Silver is another precious metal that has seen big surges in the recent year,
reaching $30/oz in early August, a price that has not been seen since 2016!
Inflation is a big contributor towards high commodity prices. As a result, in circumstances like this, commodity investments could potentially yield to a better return.
Performance and Forecasts 2021 onwards
Covid vaccinations have transformed the commodity sector. As businesses reopen, travel, transportation and other business operations resume, the economic cycle saw fair improvements and the sudden demand for raw materials and petroleum products have seen to affect gold, silver, and oil prices.
Already this year, numerous markets have seen significant optimistic sentiment, inspiring many analysts to forecast a brighter future for commodities as the world has started to get back to normality.
According to the World Bank's semi-annual Commodity Markets Outlook, commodity
prices have started to build up during Q1 of 2021 and are likely to remain
similar to current levels throughout the year, filling up speculations among
traders and economists that a "supercycle" has begun.
A commodities supercycle occurs when the prices of a variety of base materials
remain much higher above their long-term monetary trendlines for a long period
of time (even decades).
Oil
Since the beginning of 2021, oil prices have begun to return to pre-pandemic
levels to above $65/barrel. According to S&P Global Platts Analytics, oil
demand will average 99.3 million barrels per day (bpd) in 2021, up from 93.1
million bpd in 2020.
Similarly, Goldman Sachs recent forecast on oil, showed that prices could reach
$80/barrel in the second half of this year, warning that there might be a major
supply deficit this summer as vaccine rollouts speed and people plan their
vacations, increasing demand by more than 5% globally.
Copper, the world's most significant industrial metal, surpassed $10,000 for the first time since 2011.
Palladium reached its new highs above
$3,000/ounce during May 2021.
Agricultural Commodities
Even though some agricultural commodities, such as coffee and cocoa underperformed in 2020, most ended up gaining momentum with cereals, oilseeds, palm oil, and sugar standing out; and with Chinese demand projected to remain robust, agricultural commodity prices are projected to rise throughout much of 2021 and are expected to continue to do so and stabilize next year.
Final Thoughts
Commodity trading goes back long before stocks were traded. It was a
very essential industry that aimed to bring many cultures and individuals
together. Commodity investments can help retail investors diversify their
portfolio from the usual stock trading and potentially increase their earnings
on their investments, but still, just like any type of investment, trading
commodities includes risks.
While trading commodities is broadly available, potential trading opportunities will be determined by how thoroughly you investigate the applicability of each commodity to your needs and your ability to monitor the elements affecting that commodity's performance.
To assist you in the process, ForexTB's educational & training material, including advanced market analysis from
Trading Central, gives a high-quality and fully-rounded trading experience for any asset you
want to trade.
