Commodity trading is booming at least for gold traders; the precious metal is reaching record highs in the second quarter of 2024.
Oil, however, is still struggling, with the dual problem of high production and Middle East tension curbing the price of liquid gold.
Meanwhile, in the USA, electric cars could receive a boost while coal production slows.
In this article, we highlight commodity trading trends in the market.
Commodity Trading: Gold Reaching Record Highs
Gold’s price rally accelerated on April 9 as momentum buying and geopolitical tension pushed up the price of the precious metal.
Investors are closely watching the Federal Reserve’s policy meeting minutes, as well as last month’s US inflation data to gauge when the US might cut rates, which has a major effect on commodity trading.
By morning, spot gold was up 0.8% at $2,357.19 an ounce after reaching a new high of $2,365.09 earlier, while US gold futures gained 1.1% to $2,376.00.
Commodity Trading: CPI Watch
Traders are eagerly waiting for the minutes of the latest meeting of the US central bank and for the CPI figures set for Wednesday, which pundits regard as the main monitors for commodity markets.
Commodity Trading: Gold a Safe Haven Asset?
While it is traditionally seen as protecting against inflation and geopolitical turbulence – the latter a current possibility, with the US bombing Syria – gold becomes a lot less attractive if interest rates start to rise, earning nothing while the cash you keep in the bank earns a pittance.
The World Gold Council (WGC), which promotes the yellow metal, identified the driving forces behind the current gold rally as ‘continued and increasing geopolitical risk, healthy demand from central banks, sustained jewelry demand, and investment demand in bars and coins’.
Commodity trading: Further Rate Cuts Ahead
It added that ‘Further rate cuts could lie ahead, suggesting that gold ETFs are currently under-invested after the rally’.
Market odds at the CME Group put a 53% chance on a June rate cut.
Fawad Razaqzada of City Index believes that whilst gold’s longer-term demand, appears positive, in the short term we might see a small correction in its price.
Meanwhile, spot silver had risen 1.7% to $28.29 an ounce, its highest level since June 2021. Platinum and palladium both advanced by some 3% to $986.75 and $1,073.39, respectively.
The Bank of America analysts say unbridled production discipline is a trading call for palladium, which might linger behind platinum, which has a higher, more diversified demand, deemed an important truism of commodity trade.
Commodity trading: Oil prices see minor rise
In commodities trading, oil prices eased on Tuesday after the previous session’s fall, as hopes for ending the fighting in Gaza faded following unsuccessful Israeli-Hamas talks on a ceasefire.
Benchmark Brent crude futures rose 5 cents to $90.43 per barrel, while U.S. West Texas Intermediate (WTI) crude futures fell 10 cents to $86.33.
That could make peace more likely than seemed possible after open hostilities began.
Commodity trading: Middle East Tension
After ceasefire negotiations were held and accepted by Israel and Hamas in Cairo, the first decline occurred in Brent in five sessions, and in WTI in seven Another blow to hopes for peace came with Israeli PM Benjamin Netanyahu announcing the intention of Israel to invade the Rafah area of Gaza and ‘prepare for a war to the bitter end (with) Hamas and Islamic Jihad’.
If the current conflict between Israel and Hamas develops into a wider conflict that may eventually involve Iran, the world’s third-largest oil producer and one of the leading supporters of Hamas.
Forex Trading Insights: US Dollar Surges, Inflation curbed
Meanwhile, Turkey announced that it would halt the export of several items to Israel, including jet fuel, without a ceasefire in Gaza. Israel responded with plans of retaliation.
Making matters worse, earlier this month Pemex, Mexico’s national oil company, announced it would cut crude oil exports by 330,000 barrels per day, shifting its flow to domestic refineries.
With that, Pemex cut off at least a third of its supply to export markets in the United States, Europe and Asia, following a 20% reduction in April exports.
Commodity trading: US Inflation Data
Investors are even more avidly looking at forthcoming inflation data from the US and China for any signal on the economic paths ahead for the world’s biggest oil consumers. There’s also obvious anticipation ahead of the decision of the European Central Bank on interest rates next week.
Brent crude at $133.45 a barrel after touching $139.13 this week.
With higher crude prices factoring into the equation, the inflation control picture gets more complicated: speculation mounts for a potential rate cut as early as 2024.
Interestingly, Vitol’s CEO Russell Hardy said that he anticipated a ceiling of $80-100 a barrel for oil prices at a conference in Switzerland, and predicted a hike in oil demand of 1.9 million barrels a day in 2024, thus revealing some important dynamics in commodity trading.
Utilities across the US are expected to drop the share of coal in US electric generation to record lows in the warmer months ahead as heating demand declines further and the output from solar and wind farms hits new peaks, in the latest milestone on the tumultuous curved that has up-ended the commodity trading of energy fuels.
Commodity trading: Coal Supply At Risk
In the first quarter of 2024, coal accounted for about 16% of the US power mix, down from 17% in the first quarter of 2023 and down from 24.3% in the first quarter of 2021, according to data from LSEG.
This figure has in turn dropped to 12.6% since the beginning of March, the lowest it’s been since at least 2021; and possibly, the lowest it’s been ever.
Typical April and May reductions in heating needs, combined with growing output from renewable energy sites, should in theory allow power producers to drive coal’s share down even further – perhaps even under 10%.
This reduction would mark a key milestone for environmental activists hoping to phase out the use of the dirtiest fuels in the power sector, especially when the alternative is abundant.
The rise in electricity demand caused by air conditioning during the summer months is likely to lead to a temporary increase in coal usage.
The expected drop to low, single-digit percentages shows how that usage could be shut down entirely at certain times in the coming years.
In the United States alone, the country is the third-largest coal consumer, after China and India, and its coal-fired power plants emit about 640 million metric tons of carbon dioxide in 2023.
Over 3,000 electric utilities, each serving more than 140 million customers in the US, power a staggering number of homes, businesses, farms, and industries.
The sources of their power vary enormously, with some of these utilities, such as those in Vermont and Washington, drawing more than 75% of their power from clean sources, and others, such as those in Kentucky, West Virginia, and Delaware, drawing far less.
With seven states generating more than half of their electricity from coal, US power production features enormous variations in its carbon intensity.
In 2023, the mean carbon intensity in the US was 409 g of CO2 per kWh. This means that WAPA and AEC were burning coal at the highest rate of all utilities in 2023.
Utilities such as WAPA, AEC and Pacificorp East (PE) have traditionally leaned heavily on coal.
Although the increased availability of renewable energy and natural gas provides an opportunity to decarbonise, as winter heating demand begins to drop, the angle of available natural and carbon-free resources will provide a better opportunity to do so.
This will be more difficult for utilities, like AEC, that have a strong dependence on coal and less access to renewable resources.
Not all of them will be able to make meaningful cuts in coal use without adverse impacts on levels of electricity supply, and many of their own reductions will benefit only their own companies.
But there is huge spare capacity to cut coal use during periods of low heating use – helping to achieve national reductions to avoid coal pollution in the days ahead.
In a setback for a Republican-led group of 17 states joined by several private parties connected to the sale or production of liquid fuels, the US Court of Appeals for the District of Columbia, sitting in a three-judge panel, upheld on Tuesday the US Environmental Protection Agency’s (EPA’s) authorisation for the state of California to set its own tailpipe emissions and electric vehicle mandates.
In a partial win for the state of California, the court struck down a portion of the EPA’s reform eliminating waiver authority from the state completely, rather than just for rules passed after 2014.
In March 2022, the Biden administration’s EPA announced that it was reinstating California’s authority to set its own rules governing sale of zero-emission vehicles and permitting emissions from tailpipes because those mechanisms had previously been revoked from the state of California by the Trump administration in 2019.
The impact of this politically charged rule on commodity trading could determine the fate of energy and automobile markets, potentially impacting demand for liquid fuels and EV conversion rates for decades to come.
