As we progress
through 2024, the commodities market is emerging as a key area of interest for
investors seeking to diversify their portfolios and hedge against inflation.
With insights from Kar Yong Ang, a financial analyst at Octa broker, we explore
the most promising commodities of the year, including gold, oil, lithium, and
others, and provide strategies for traders to navigate these opportunities
effectively.
Understanding Commodities
Commodities,
ranging from precious metals to energy resources and agricultural products, are
the raw materials that power the global economy. Unlike financial assets, their
value is largely determined by supply and demand dynamics. ‘In 2024,
commodities are playing an essential role in portfolios, particularly as a
hedge against inflation and currency devaluation’, explains Octa analyst Kar
Yong Ang. This fundamental difference makes commodities a vital tool for
diversification, especially during periods of market volatility. Besides, they
are seen as more predictable. Considering these two factors, commodities can
help you minimise financial risks.
Top Performing Commodities of 2024
Gold continues to stand
out as a safe-haven asset, especially amid global uncertainties. The financial
turmoil in August 2024 and ongoing geopolitical tensions have significantly
increased demand for gold. ‘The reduction in import duties by key markets like India
has further boosted retail demand, reinforcing gold’s position as a
top-performing commodity this year’, notes Kar Yong Ang. Central banks have
also been major buyers, with a net purchase of
228 tonnes of gold in Q1 2024 alone, marking a
34% increase compared to the same period in 2023. This surge has driven prices
to record highs.
Traders should
monitor inflation rates, interest rates and the strength of the American
dollar. Since gold is traded in dollars, its price
is inversely related to the USD exchange rate. When the dollar weakens, gold
becomes cheaper for holders of other currencies, stimulating demand and
increasing its price. The same happens if the Federal Reserve (Fed) cuts
interest rates, which is the expected scenario according to the current market
sentiment. Here’s how lower interest rates affect gold:
●
reduce the attractiveness of competing investments like bonds, making
gold a more appealing safe-haven alternative
●
may stimulate economic growth, often leading to higher inflation; since
gold is historically perceived as a hedge against inflation, its price tends to
rise as investors heavily invest in it to protect themselves
●
might signal economic weakness or uncertainty, which could additionally
boost gold’s appeal as a safe-haven investment.
Despite
recent price drops, oil remains a
crucial commodity due to its integral role in the global economy. ‘Geopolitical
tensions and OPEC+ production decisions heavily influence the 2024 oil market’,
says the expert. The economic slowdown in major economies like China and the
U.S. has tempered demand, with global oil demand expected to grow by
just 1.2 million barrels per day (mb/d) in 2024, down from a previous forecast of 2.4 mb/d.
However,
oil remains a vital energy source, and the coming months could see significant
price fluctuations, especially if geopolitical tensions escalate or supply
disruptions occur. Traders should stay alert to changes in crude oil and
petroleum inventory levels in key oil-consuming countries and monitor supply
dynamics in major oil-producing countries.
Exotic Commodities to Watch
Besides major
commodities, traders can consider less conventional ones like cobalt, lithium,
nickel, graphite, hydrogen, carbon credits, or rare earth elements (REE). They
are boosted due to global technological changes and a global green agenda. Here’s
a breakdown of three emerging commodities to watch:
- Lithium’s importance is growing rapidly as the world shifts towards green
energy, particularly in the production of electric vehicle (EV) batteries.
The global EV market is projected to grow significantly, with EV sales expected
to increase by 35% in 2024, driving up
the demand for lithium. This makes lithium an interesting alternative for
traders, especially as countries continue to invest heavily in renewable
energy infrastructure and aim to scale up EV production. The ongoing
advancements in battery technology, including the push towards higher
energy density and longer battery life, further underscore the importance
of lithium in the coming years. However, it’s important to note that the
futures market for lithium is not sufficiently liquid, making it challenging
for traders to gain direct exposure. Most traders can access the lithium
market through investments in lithium-producing company stocks or
exchange-traded funds (ETFs) focused on this sector. - Nickel is another commodity to watch, primarily due to its essential role
in high-energy-density batteries. However, recent fluctuations in nickel
prices, which saw a drop of
nearly 15% due to increased supply from key producers, highlight the market’s volatility. Traders should be cautious of
supply constraints and geopolitical risks, particularly as these factors
could further impact nickel prices. Monitoring technological advancements
in battery production and developments in global supply chains will be
crucial as these elements are likely to shape the future demand for
nickel. It’s important to note that the futures market for nickel is not
highly liquid, meaning that most traders seeking exposure to this
commodity may need to do so through investments in nickel-producing
company stocks or exchange-traded funds (ETFs) that focus on the sector. - Hydrogen is increasingly seen as a cornerstone of the clean energy
transition. Governments worldwide are investing heavily in hydrogen
infrastructure, positioning it as a key energy carrier for the future. In
2023 alone, global direct investments in hydrogen-related projects reached nearly
$16 billion, reflecting a significant commitment
to developing this sector. Furthermore, the International Renewable Energy
Agency (IRENA) projects that hydrogen could
meet up to 12% of global energy demand by 2050, underscoring its potential as a transformative force in the
energy market. However, it’s important to note that hydrogen is not a
traded commodity in the classical sense. There are currently no
operational market or futures contracts for hydrogen, making it
challenging for traders to gain direct exposure. As the sector evolves,
traders will need to explore alternative methods, such as investing in
companies involved in hydrogen production and infrastructure, to
capitalise on this emerging market.
The commodities
market in 2024 will be a critical space for investors looking to navigate the
challenges of a volatile global economy. To succeed in this dynamic market,
traders need to stay informed about global economic trends, geopolitical
developments, and the shifting demand for these vital resources. Moreover, they should practice
risk management to protect their funds, especially in times of volatility. To
safeguard themselves, traders need to keep learning. To avoid getting
distracted, it’s best to access educational sources at a trading platform like Octa,
which offers free learning materials, a user-centric trading experience, and
the five most popular commodities to trade, including gold and oil.
This facilitates improved concentration, hence increasing the chances of
successful trades.
About Octa
Octa is an international broker that has been providing online trading
services worldwide since 2011. It offers commission-free access to financial
markets and various services already utilised by clients from 180 countries who
have opened more than 42 million trading accounts.
The company is
involved in a comprehensive network of charitable and humanitarian initiatives,
including the improvement of educational infrastructure and short-notice relief
projects supporting local communities.
Octa has also won
more than 70 awards since its foundation, including the ‘Best Educational
Broker 2023’ award from Global Forex Awards and the ‘Best Global Broker Asia
2022’ award from International Business Magazine.