Commodities Surge to Seven-Year High

April has seen the Bloomberg Commodity Index reach a seven-year peak, driven primarily by a select few commodities as a majority wait their turn. This surge has been dominated by luxury commodities as they are known in cocoa, gold and coffee, which have provided significant returns to investors. In contrast, luxury stocks like Hershey’s, Barrick Gold, and Starbucks have experienced declines ranging from 14% to 30% year-over-year.

Shift in Investment Strategies

The traditional strategy of using equities as proxies for investing in commodities is witnessing a decline. While its too early to tell, 2024 could mark the year when the largest number of high net worth investors opened a futures account ever. Allowing them their first chance to invest in the raw commodity and not just companies in a particular space.

Gold and Silver’s Predictive Power and Recent Achievements

Gold’s historical ability to predict inflation is once again in the spotlight. True, inflation has eased as of late, but to crunch the numbers it’s just not good enough. While 3 to 4 percent inflation sounds rather tame, the metrics tell another story. Adding 3.5% to 9% is where the problem lies and that’s a lot. This deeply embedded inflation could lead to continued wage increases and prolonged economic cycles marked by ongoing price pressures. Often, what it takes to end that spiral isn’t fun. Usually, large amounts of red on the screen.

Reflecting on our forecasts from last year, both gold and silver have met the targets we set, with gold reaching $2,500 and silver at $30 per ounce. These achievements not only validate our predictions but also indicate potential trends for other commodities such as energy, base metals, and materials.

Cocoa, Coffee, and Crude Oil: A Closer Look

Cocoa prices have reached an astonishing $12,000 a ton up from $3,000 just one year ago, up 400%. Similarly, coffee prices have begun to increase as well, up 32% since just the start of the year. Crude oil and gasoline have also seen notable increases, with crude oil up by 22% and RBOB gasoline by 24%, signaling future inflation from the most important sector of all, that being energy.

Investment Outlook and Strategic Considerations

With the Commodity Research Bureau Index (CRB) up 13% year-to-date, the overall commodity market shows strong performance despite some sectors lagging. The remainder of the year will be critical to observe, particularly how commodities like gold continue to act as economic indicators.

We are in the process of updating our forecasts for the second and third quarters, focusing on commodities that show strong potential based on current trends and underlying fundamental factors. For investors, the current market conditions present an opportune time to consider the benefits of direct commodity investments, particularly in a landscape where traditional equities fall short of capturing the dynamics of global commodity markets.

Conclusion

The current commodity surge presents a compelling opportunity for investors seeking robust returns and those considering diversifying their portfolios beyond traditional equity investments. It should be noted that commodity trading involves substantial risk of loss. In our opinion, as we move through 2024, the strategic opening of futures accounts could redefine investor engagement with the commodity markets, positioning savvy investors to capitalize on these rising trends.