Gold and commodities during pandemic times

Will gold glitter in the future?  

Gold has always been considered a valuable asset for investments and bank reserves. The precious metal is a safe-haven commodity for many owing to its less volatile nature. However, the current coronavirus has pushed Gold into a new trading territory altogether.  

Pre-pandemic, Gold hovered around $1600 per ounce. As the pandemic rattled markets, the gold price took a hit. By August 2020, the gold prices inched higher, recording all-time highs above $2000 per ounce. It witnessed a sharp increase of 28% last year.   

Director of Metals Demand, Refinitiv, Cameron Alexander, says, “Gold is being pulled in two directions: One is the uncertainty (referring to the still-escalating pandemic). But equities are still doing well fuelled by central bank stimulus.”  

Most analysts are predicting that Gold will exceed $2,000 per ounce by the end of the year.

BofA Securities’Securities’ commodities strategist Michael Widmer says the surge would be fueled by continued global uncertainty at least over the next few years. At the time of writing the report, the gold price was trading at $1802 per ounce.

Gold prices hit record high in August 2020
Commodity prices rise  

The majority of other commodities, including silver and copper, are rallying on rising demand. Metals are expected to grow by 30%,and agricultural prices by 14% according to the World Bank’s ”Semi-Annual Commodity Markets Outlook”.

The current closing silver price is $25.42 per ounce against $23.05, the corresponding period. The price was $17.85 in January 2020. Copper Price is at a current level of 9631.50, up from 5754.60 one year ago.  

In May 2021, iron ore was valued at approximately $207.72 U.S. dollars per dry metric ton unit (dmtu) compared to $93.65 U.S. dollars per dmtu in May 2020. 

In the Outlook report, World Bank Senior Economist John Baffes notes, “Metal price shocks are primarily driven by external demand factors, such as global recessions and recoveries. During a recession, metal exporters may be hurt by both the broader downturn as well as a collapse in prices. Output losses associated with price drops are greater than the gains from price increases, and policymakers should prepare accordingly.”  

Speaking of agricultural commodities, the price of lumber futures rose 304% between January 2020 and May 2021, touching record highs. Since mid-2020, food prices have spiked for straight nine months.  

Commodity. What is it? 

 Just like stocks and bonds, commodities are another class of assets. They comprise raw materials and natural resources used in all production and manufacturing processes. 

There are three types of commodities.   

Agricultural (coffee, corn, sugar, soybeans, wheat) 

Energy (crude oil, gas) 

Metals (Gold, copper, platinum, aluminium).  

Most commodities are traded on commodities exchanges such as the New York Mercantile Exchange (NYMEX) and Chicago Mercantile Exchange.  

Impact of commodities on stock markets  

The current prices of commodities have a significant impact on the value of the stock market indices. When commodity prices soar high, usually stock market indices trade at high levels. The cycles of downtrends and uptrends can affect the earnings of public companies and financial markets.  

The prices of commodities affect the operational costs of corporations reflecting in the quarterly and annual reports. These reports drive stock market investors to make various decisions that affect the prices of individual stocks and stock market segments.  

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