Commodity markets under the spell of the economy and monetary policy in 2024
Published: Friday, Dec 22nd 2023, 11:20
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2023 could hardly have been more different for the commodities crude oil and gold. While the price of crude oil (Brent) fell sharply, the precious metal recorded a new all-time high at the beginning of December 2023. What happens next in 2024 will now depend heavily on economic developments and the decisions of the central banks.
After a volatile 2023, the international commodity markets are set for another exciting year in 2024. As the year drew to a close, investors focused in particular on gold as a "safe haven" and crude oil as a "lubricant" for the global economy.
Since September, the price per barrel (159 liters) of Brent crude oil has fallen from highs of around USD 97 to only around USD 78. In the summer, hopes that there would be no recession in the USA and unexpectedly robust demand from China had provided a boost. "There is not much left of this now," writes Thomas Kulp from the German DZ Bank in a commentary.
Even the production cuts announced for 2024 by the members of the Organization of the Petroleum Exporting Countries (OPEC+) have so far provided little new impetus.
Gold price defies rise in interest rates
The situation with gold is different. Rising interest rates are actually "poison" for the price of gold. Because the precious metal pays no interest, the opportunity cost of owning it increases and other asset classes become more attractive. Despite this, the interest rate hikes by the US Federal Reserve in 2023 did not send the price of gold on a downward spiral. This was despite the fact that they also made the dollar more expensive against other currencies. This was also a burden because gold is primarily traded in the US currency.
Currently, an ounce of gold (approx. 31.1 grams) still costs over 2,000 US dollars. At the beginning of December, it even reached a new record high of 2135 US dollars. The reason for the soaring price was the economic and geopolitical situation. The collapse of Credit Suisse and the outbreak of war between Israel and Hamas in the Middle East brought worry lines to investors' faces.
For Kulp from DZ Bank, gold was "the ultimate safe haven" in this context. The precious metal has virtually "shone in new splendor".
The situation was not entirely dissimilar - albeit somewhat less pronounced - for its sister metal silver. In contrast to gold, silver is used even more in industry, as Ned Naylor Leyland, fund manager at Jupiter Asset Management, explained in an interview with AWP. But here too, the terrorist attacks on Israel led to a jump in prices, at least in the short term. Looking at the year as a whole, the silver price had more trouble. A troy ounce currently costs around 24 dollars, compared with a high for the year of around 26 dollars.
Copper and platinum struggled
Platinum, on the other hand, is also a precious metal - but one that is primarily used in the automotive industry, as Andre Christl, CEO of German precious metals trader Heraeus, explained. And the automotive industry did not really get going in 2023: new registrations in the EU are below the level before the start of the coronavirus pandemic. A troy ounce of platinum currently costs 970 dollars. The price is well below the high for the year of 1134 dollars.
Copper also did not really get off the ground in 2023. The industrial metal is considered an early indicator of economic development. The price shot up at the beginning of the year, but then fell again significantly. According to Goldman Sachs, this was primarily due to the subdued global economic development. The current price of around USD 8,400 per tonne is just under USD 1,000 below the high at the beginning of the year.
Looking ahead to 2024
But what is the outlook for 2024? The tense global economic situation will generally weigh on demand for commodities at the beginning of 2024, writes ZKB. However, the prices of commodities that are considered cyclical are already anticipating a certain slowdown. Structurally, there is above-average potential for metals used in this sector due to the issues surrounding the energy transition.
However, this is bad news for platinum and palladium, as Christl says. Hybrid and combustion engines need these metals in their catalytic converters, pure electric vehicles do not. The longer-term prospects for these metals in terms of price are therefore rather poor. In the short term, however, Heraeus expects a range of 700 to 1200 US dollars per ounce for palladium (current price around 1200 US dollars) and 800 to 1100 dollars for platinum.
As far as gold is concerned, however, the focus is not on the industry, but clearly on the decisions of the central banks. The ZKB makes it clear: "Potential interest rate cuts by the major central banks will give gold a boost in the course of 2024."
And following the Fed's latest interest rate decision, investors have regained hope. After all, the monetary authorities in the US signaled last week that three interest rate cuts are within the realm of possibility.
Various forecasts for gold
Nevertheless, the price estimates of the individual experts differ. Heraeus, for example, expects a range of 1880 to 2250 US dollars, while DZ Bank is somewhat more conservative and only expects the upper end of the range to be around 2000 dollars. And Michael Strobaek from Lombard Odier expects "a gradual price increase to 2100 dollars per ounce."
As far as Brent crude oil is concerned, however, Strobaek expects a range of 80 to 90 barrels - with downside risks. DZ Bank, on the other hand, is more optimistic. According to analyst Kulp, he believes that the price of crude oil will see a sustained upward movement to around 95 dollars by the end of 2024 - including discussions about exceeding the 100 dollar mark.
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