Global Commodity Markets In Turmoil; Gold Surges Amid Economic Uncertainty

Global commodity markets covering energy, metals and agriculture have gone through turbulent times from the beginning of this month. The imposition of tariffs and countermeasures by various countries has caused huge uncertainty. ‘When will calmness return to the markets?’, is a question every market participant is asking.

The oil market faced the most severe turbulence. By the middle of last week, the price of Brent crude had fallen by $15 a barrel compared to the beginning of the month. However, there was strong recovery thanks to the relief of the US government’s pause on most reciprocal tariffs.

The extent to which global demand for oil weakens is likely to depend on economic activities in China, as the world’s two largest economies, the US and China, are currently engaged in a fierce tariff war. This week the International Energy Agency (IEA) and OPEC are scheduled to present new demand forecasts in their monthly reports. However, even if there is no major downward revision of the demand forecast, the oversupply in the oil market is likely to be significant. This is because of the stronger production in OPEC+ from May.

This week, many indicators from the Chinese economy will be published. These will have a bearing on the base metals market where the sentiment is battered because of tariffs. After the announcement of a 90-day suspension of US tariffs, there has been some recovery.

But further recovery potential is limited for the time being, as it is unclear what will happen after 90 days. Consumers have turned cautious as the tariff friction between the US and China is still playing out. US tariffs on most Chinese goods are at, what’s seen as, a punitive rate of 145 per cent.

On its part, China has imposed restrictions on the export of many critical minerals required for high-tech applications like in defence, space and so on. Many analysts are now revisiting their price forecasts for various commodities and downgrading price targets, given the tariff war-induced threat to economic growth. What would bring about a recovery in base metal prices? According to experts, a jump in prices can be expected if the US and China were to agree to a ‘deal’. How probable is such a deal? It’s anybody’s guess.

While overall commodity markets faced a slump, gold performed exceptionally well to cross $3200 a troy ounce for the first time on April 11. Given the high level of geopolitical and economic uncertainty, the yellow metal is expected to be well supported.

According to reports, gold ETF investors have continued to show buying interest. Last month saw net inflows of 92 tonnes, as much as in February. In the first quarter of the year, gold ETF holdings rose by 226 tonnes.

On the other hand, silver has come under huge pressure due to its stronger industrial character, even as industrial activities around the world are faced with uncertainty. The gold/silver ratio has risen above 100 for the first time since mid-2020. But there seems to be no strong justification for the big discount on silver prices. For the last four years, the world silver market was in a state of deficit. This year, too, silver will face a supply deficit. If this assessment is confirmed, silver should regain ground in the medium term.

In agriculture, cocoa and coffee were also impacted by the US tariffs. Cocoa prices fell to a 5-month low of about $7600 per tonne at the ICE in New York last week. The same trend was seen in London too. There is now concern that tariffs could weaken demand. The world’s important producer, Ivory Coast, was slapped with a 21 per cent reciprocal tariff, but with the 3-month suspension, the tariff is 10 per cent for Ivory Coast and Ghana.

The coffee market, too, was not spared and reacted negatively to tariffs. Arabica and Robusta prices fell to multi-month lows. Vietnam, a large supplier of Robusta, was slapped with 46 per cent duty and Indonesia with 32 per cent; but the 90-day suspension means only 10 per cent duty for the time being.

Overall, global markets are likely to remain on the edge and prices volatile. Exporters will scramble to maximise shipments while importers would build as much inventory as possible, given that the picture beyond 90 days is hazy. This uncertainty is seen shaking the confidence of market participants.

(G. Chandrashekhar is economist, senior editor and policy commentator specialising in agribusiness and commodity markets. He provides policy inputs for the government. He serves on corporate boards as independent director and is an independent member of SEBI-CDAC. Views are personal)