The world’s commodities markets are staging a comeback as the global economy bounces back from the steepest downturn since the Great Depression.
The Bloomberg Commodity Spot Index rose 1.3% on Thursday to its highest since 2014 with the world inching closer to a covid-19 vaccine and the transition process to a new US president becoming clearer. That has Wall Street regaining its appetite for risk, delivering commodities their best run in years: Copper, long seen as a bellwether for the global economy, is surging; oil is recovering from the worst effects of the lockdowns; and extreme weather and strong Chinese demand is driving up crop prices around the world.
It’s a staggering turnaround from the depths of the pandemic, when crude plunged into negative territory for the first time as traders ran out of space to store unwanted supplies while base metals plummeted to multi-year lows as entire economies shut down.
The rally may have further to run. Goldman Sachs Group said last month that recent gains are just the start of a “much longer structural bull market” in commodities. Bank of America said November 24 it sees “modest” gains across the board in 2021 as the world economy bounces back from the steepest downturn since the Great Depression.
Oil has clawed its way back to levels last seen in March. Recent breakthroughs on Covid-19 vaccines are reshaping the futures contracts curve into a bullish backwardation structure, signaling expectations of tighter supply and stronger demand as more people resume driving and flying.
Copper, meanwhile, has surged about 70% above its March low to its highest in six years. A weaker dollar has helped, as has a global move toward low-carbon power sources that’s driving the metal’s use in electronics and alternative-energy equipment. Other industrial metals including aluminum and zinc are rallying on rebounding growth in China, the biggest consumer.
Soybeans and corn have jumped recently after dry crop weather in South America and Europe hit yields while China has bought massive amounts of farm goods from the US.
The one notable exception to the rally has been gold. A traditional haven, the yellow metal has retreated in recent months after prospects for a successful vaccine boosted global markets. The start of US President-elect Joe Biden’s formal transition also reduced bullion’s appeal.
Spot gold slipped 0.2% to $1,836.57 an ounce on Thursday amid a continuing stalemate in coronavirus-aid talks among U.S. lawmakers. However, bullion is still heading for its biggest annual gain in a decade.
(By Stephen Cunningham and Joe Richter, with assistance from Michael Hirtzer and Andres Guerra Luz)