2016 was a good year for commodities and financial analysts globally project that 2017 will be even better. Raw materials in the metals market, agriculture and energy saw a 25% increase in 2016 as opposed to a 30% decline in 2015. The previous year’s performance was the best that commodities have had in over five years. If you intend to get into commodity trading, first look at how the market is expected to fair. It will be less challenging for an investor to decide whether to put money in gold or crude oil after learning about the forecasted trends of each option. Here are a few commodities and their expected performances in 2017.
The oil markets had a few price fluctuations in 2016 mainly due to the production cuts proposed by Opec (Organization of Petroleum Exporting Countries). Whether the agreement is implemented or not remains to be seen, but it is clear that it will significantly influence oil prices. As a matter of fact, oil averaged $26 a barrel at the start of 2016 but rose to up to $50. However, the price is expected to stay stable due to several drivers. For one, there is the increased supply of oil from non-standard sources such as shale. As producers rely less on traditional fuel sources, the industry will be able to meet the energy needs of consumers even with the production cuts. A stronger U.S dollar and high demand will also guarantee the stability of prices. Natural gas and coal prices have also surged in past months, and the increased energy consumption among consumers is bound to keep them up. As more people switch to natural gas for their utilities, the commodity saw its best performance in 2016; in fact, it was the best performing.
The yellow metal saw the best prices in 2016 in the wake of the Brexit vote in June and concerns over China. Gains for the first half of 2016 were the highest since 1979. However, gold prices did an about-turn later in the year when the Federal Reserve announced that it might institute at least three rate hikes. Because gold is priced in dollars, any rate hikes will result in a higher currency, which puts more pressure on the yellow metal. Then came the Donald Trump win and everything went downhill for gold. The metal closed the year at almost $1,150 an ounce and analysts speculate that in 2017, it may go below $1,000/oz.
Construction metals are expected to surge in 2017, especially after the infrastructure plans that President Trump has for the U.S. Japan, Canada and China have also expressed their desire to improve infrastructure, which will increase the demand for industrial metals like aluminium, copper and iron ore. China had strong iron ore and coal imports in 2016 that saw the prices of the two commodities rally steadily. Although steel may not experience as great a performance as other base metals, it is projected to maintain a steady price. China’s finances look promising, and a recovery will mean higher copper prices because the nation is the largest consumer of the industrial metal.
Commodity Price Determinants
Traders must understand the factors that drive commodity prices across the globe before playing the markets. Knowing the industry motivators to watch out for removes the guesswork from your trading practices. When you log into an online trading platform such as CMC Markets, you are aware of the indicators on which to focus. You can easily filter out the noise when analysing industry news because you know what matters. Policies are some of the biggest influencers of commodity prices. When Opec says oil supply will be reduced, price is affected; European countries start having trouble and gold prices shoot up. Policies influence spending, growth and inflation, which are all elements that drive the commodity prices in different directions. Supply and demand are other reasons for price fluctuations. Producers have recently cut back supply on most products, which has helped in balancing the markets. An abundance of a commodity can impact the price negatively.
Traders are optimistic about the performance of commodities in 2017, but many uncertainties persist. Investors have to wait to see if the Fed increases rates again, how Britain exists the EU and how quick China can stabilise its economy. Speculations about the pending elections in Italy and France are also factors to consider.
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