The Assay - Inflation at the Gate, Ready to Drive Commodities Higher
ADVERTISEMENT
The Assay - Mining investment news, insights and company profiles
Mining investment news, insights and company profiles
No Result
View All Result
Subscribe
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
The Assay - Mining investment news, insights and company profiles
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners
No Result
View All Result
Subscribe
The Assay - Mining investment news, insights and company profiles
No Result
View All Result
Home Articles

Inflation at the Gate, Ready to Drive Commodities Higher

By Gavin Wendt, MineLife

byThe Assay
5 years ago
Reading Time: 1 min read
Inflation at the Gate, Ready to Drive Commodities Higher

The recent break in the bond market through critical levels of technical support, selling in stocks, and a lethargic US dollar, could be signalling that inflation is coming back with a vengeance. If we are indeed on the verge of an inflationary spike, commodities will likely be the asset class that performs best. Commodities prices tend to be barometers of inflationary pressure.

Before we examine this in more detail, it’s fair to say that one of the biggest support factors for the commodity sector overall since the beginning of 2017 has been the weakening trend in the US dollar. In 2017, the dollar supported commodities prices.

Commodities prices have moved higher as an asset class since reaching lows during late 2015/early 2016. Over the past 12 months we have seen key raw material prices trend to the upside – including copper, oil and gold. By contrast, the US dollar has declined. This is clearly represented in the graphic below, which compares their relative performance.[/vc_column_text][/vc_column][/vc_row]

Inflation at the Gate, Ready to Drive Commodities Higher

Interestingly, coincident with the US dollar’s most recent low, we correspondingly saw crude oil traded at its high at $66 a barrel and gold move to the $1370 per oz level. Whilst the US dollar began 2017 in strong fashion, the greenback reversed and spent the rest of the year moving to the downside. Not even three interest rate hikes by the Fed could arrest the US currency’s decline.

As the dollar has headed lower, many raw material prices – both industrial and agricultural – have moved higher. This reinforces the connection between the value of the US dollar and commodity price movements.

But another important support factor for commodity prices is also at play. Commodities markets are increasingly being influenced by developments in interest rate markets. The recent decline in the bond market that triggered panic selling of equities, also temporarily lifted the dollar, whilst leading to a retracement in commodities prices.

It’s true that lower bonds and higher interest rates tend to lead to an increase in the cost of carrying inventories, which often leads industrial consumers to sell off stockpiles and purchase requirements on a hand-to-mouth basis. Higher rates also increase the cost of carrying a speculative long position, which often deters buying in many raw material markets. Higher real interest rates tend to have a bearish impact on commodities prices.

However, what we’re seeing now is somewhat different. Sometimes bonds fall and rates rise because of inflationary pressures, which can have the opposite effect on raw material prices – effectively pushing them higher. This is the situation I believe we’re in now. It’s commonly acknowledged that inflation eats away at the value of money, so when interest rates rise – so do commodities.

While the memories of the global financial crisis of 2008 have faded somewhat, the tools central banks used to fight off potential economic disaster in the years that followed will inevitably take their toll. This included money printing and the slashing of interest rates by the US Fed, ECB and other central banks around the world to historically low levels. In the US, rates fell to zero percent, whilst in Europe and Japan short-term rates fell into negative territory.

The long-term impacts of these central bank actions are likely to be an inflationary backlash, which would create a highly bullish environment for the prices of commodities. If we are on the verge of an inflationary spike, commodities will likely be the asset class that does the best. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. Because commodities prices usually rise when inflation is accelerating, they therefore offer protection from the effects of inflation.

Inflation at the Gate, Ready to Drive Commodities Higher

Our view is supported by major groups including JPMorgan. In an interview with Bloomberg this week, they noted that “Rising inflation is beneficial for commodities. In fact, metals, both base and precious, exhibit their best performance (both outright and volatility-adjusted) when inflation has reached the Fed’s 2 percent target and continues rising.”

Glencore also touched upon the outlook for “emerging inflation” as a positive for commodities as it reported record earnings this week. In its report, Glencore said “the potential of synchronized global economic growth, emerging inflation, supportive commodity fundamentals and the emerging electric-vehicle story suggest a positive outlook for commodities.”

Summary

The recent break in the bond market through critical levels of technical support, selling in stocks, and a lethargic dollar, is likely signalling that inflation is coming back with a vengeance. Commodities prices tend to be barometers of inflationary pressure, so should therefore benefit strongly.

TweetShareSend
Previous Post

Hexagon Resources Limited (ASX: HXG)

Next Post

Mercenary Alert: Trilogy Metals Delivers Again

Related Posts

Osino Receives Multiple Project Finance Offers for Namibian Gold Development
News

Osino Receives Multiple Project Finance Offers for Namibian Gold Development

byColin Sandell-Hay, Contributor - The Assay
4 February, 2023
Snowline Gold Intersects Wide Zone of Shallow Mineralization in Yukon
News

Snowline Gold Intersects Wide Zone of Shallow Mineralization in Yukon

byColin Sandell-Hay, Contributor - The Assay
4 February, 2023
Freeman Gold Moves To TSXV And Delists From CSE
Investor Insight

Creating Opportunities for Investment Across Africa

byAmy Rotman, Content Director, The Assay
3 February, 2023
Ascendant Resources Announces High-Grade Copper Assay Results at Venda Nova South Zone
News

Ascendant Resources Announces High-Grade Copper Assay Results at Venda Nova South Zone

byKatie Gordon, Business Reporter - The Assay
3 February, 2023
Assays Confirm 50% Boost to American Rare Earths’ Halleck Creek Zone
News

Assays Confirm 50% Boost to American Rare Earths’ Halleck Creek Zone

byColin Sandell-Hay, Contributor - The Assay
3 February, 2023
Siren Gold to Raise A$2.6m to Fund Exciting NZ Exploration Opportunities
News

Siren Gold to Raise A$2.6M to Fund Exciting NZ Exploration Opportunities

byColin Sandell-Hay, Contributor - The Assay
3 February, 2023
Next Post
Mercenary Alert: Trilogy Metals Delivers Again

Mercenary Alert: Trilogy Metals Delivers Again

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

ADVERTISEMENT

Popular Articles

  • Bolivia Maintains it Historic Profile as a Global Silver Centre

    Bolivia Maintains Its Historic Profile as a Global Silver Centre

    0 shares
    Share 0 Tweet 0
  • The Rise and Rise of Indonesian HPAL – But Can It Continue?

    0 shares
    Share 0 Tweet 0
  • The Assay Guide to Palladium vs Platinum

    0 shares
    Share 0 Tweet 0
  • Zinc Mining & Market Outlook 2022-2025

    0 shares
    Share 0 Tweet 0
  • Japan Entering a Golden Age of Exploration

    0 shares
    Share 0 Tweet 0
  • Home
  • News
  • Articles
  • Investor Discussions
  • CEO Interviews
  • Company Profiles
  • Newsletter
  • Magazine
  • About Us
  • Our Team
  • Contact Us
Hyve logo

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

No Result
View All Result
  • Home
  • News
    • All News
    • Gold
    • Silver
    • Copper
    • Nickel
    • Lithium
    • Precious Metals
    • Base Metals
    • Battery Metals
    • Exploration
    • Development
    • Production
  • Articles
  • Assay Insights
  • Africa Insights
  • Videos
    • CEO Interviews
    • Investor Panels & Presentations
  • Company Profiles
  • Magazine
  • Newsletter
  • 121 Mining Investment
  • About
    • About Us
    • Our Team
    • Contact Us
    • Partners

Please note: This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine are not, and should not be construed as, an offer to buy or sell, or as a solicitation of an offer to buy or sell, any regulated products, securities or investments. This Web site and The Assay Magazine do not, and should not be construed as acting to, sponsor, advocate, endorse or promote any regulated products, securities or investments. This Web site and The Assay magazine and the information and materials on this Web site and in The Assay magazine do not, and shall not be construed as, making any recommendation or providing any investment or other advice with respect to the purchase, sale or other disposition of any regulated products, securities or investments, including, without limitation, any advice to the effect that any mining or metals related transaction is appropriate or suitable for any investment objective or financial situation of a prospective investor. A decision to invest in any regulated products, securities or investments should not be made in reliance on any of the information or materials on this Web site or in The Assay magazine. Before making any investment decision, prospective investors should seek advice from appropriately qualified and licensed financial, legal, tax and accounting advisers, take into account their individual financial needs and circumstances and carefully consider the risks associated with such investment decision.

Privacy Policy

© 2023 The Assay

Go to mobile version