The commodities sector has been experiencing gains for the fourth consecutive week, primarily supported by a weaker dollar, lower Treasury yields, and expectations of rate cuts by the US Federal Reserve. Traders and analysts previously concerned about a sharp economic slowdown are now seeing signs of a soft landing, with inflation dropping and China showing signs of improvement. However, uncertainties still exist, especially concerning the global economic outlook.
The Bloomberg Commodity Total Return Index saw a 1.3 percent increase in the month and a 2.2 percent gain for the year. Losses in the energy sector were offset by gains in industrial and precious metals, as well as in soft commodities like sugar, coffee, and cocoa. Cocoa and EU natural gas observed sharp increases, not reflected in the BCOMTR index. Analysts anticipate September to bring volatility, particularly due to the FOMC’s expected rate cut and its impact on the dollar, which saw a recent rebound.
In the oil market, focus is on Opec+ and a potential October production increase. The decision has been bolstered by chaos in Libya, where political feuds have disrupted oil supply. Crude oil prices continue to trade within a defined range, with support levels around $71 in WTI and $75 in Brent. Opec+ implemented a production cut in October 2022 to stabilize prices, but increased non-OPEC+ production has complicated efforts to raise output without impacting prices. However, supply disruptions in Libya and compliance from other countries may support a gradual output increase from October.
Gold prices dipped to a weekly low after reaching a record high, but several factors continue to support a rally in gold, such as geopolitical uncertainties. The grains sector, down 20 percent this year, awaits the results of the northern hemisphere harvest. Hedge funds have heavily shorted the sector, making it susceptible to price adjustments based on any adverse weather developments. Overall, the commodities sector remains influenced by a combination of economic indicators, geopolitical issues, and market uncertainties.
