Commodity Market Update, 2Q 2022
In this month’s episode I’ll provide a brief outlook for commodity markets from our strategy desk. Oil was the clear winner over the past three months, which accounted for most of the gains in the broad commodity index. Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and oversold signals could present buying opportunities. Over the short-term commodity prices should trade at a premium given supply risk and geopolitical issues. Long-term (two-three years), the effects of slowing economic growth as a result of tighter monetary policy and inflation could weigh on commodity prices, especially as recession signals advance.
Dantes Outlook Market Podcast · Damanick dantes
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Show Notes
Most price signals have extended into overbought territory, although pullbacks could be temporary over the next quarter. Elsewhere, metals have stabilized and oversold signals could present buying opportunities.
Trading performance was positive in Q1, built on the success of Q4. Short palladium and long soybean oil were the best performing trades, while sharp moves in wheat and oil detracted from overall gains. At times, volatility can lead to frequent or contradictory signals.
Evidently, returns across commodities are not equal. At times, there is wide divergence between sectors such as oil/gas, agriculture and metals. That means the risk of a core long position can be offset with tactical long/short positions in specific commodities.
For now, here is our base-case into Q2:
- The copper/gold ratio, a gauge for risk-on/risk-off, is stuck in a resistance range, similar to what occurred in 2017-2018 when market volatility increased.
- WTI Crude Oil broke above a decade-long resistance level at $105/bbl and faces stronger resistance near the 2008 price high at $147/bbl-$150/bbl.
- The recent decline in stocks relative to commodities is starting to stabilize, although failure to hold a decade-long uptrend indicates further downside in the ratio, especially if bond yields continue to rise.
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The information presented is for informational purposes only and should not be considered as investment advice nor as a recommendation of any particular strategy, allocation or investment product: before making any investment decision, you should seek expert, professional advice and obtain information regarding the legal, fiscal, regulatory and foreign currency requirements for any investment according to the laws of your home country and place of residence. Investing involves risk, including the possibility of loss of principal. Any forward-looking statements or forecasts are based on assumptions and actual results may vary from any statements or forecasts.
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