There’s been a sharp increase in the volume of contracts for differences (CFDs) on commodities globally. The commodity market experienced extended periods of growth in 2024, and political uncertainty may have played a key role. With rapid shifts in global markets, investors can find opportunities for unexpected moves in the currency and commodity markets.
What Are Commodity CFDs?
Commodity CFDs are trading instruments that allow investors to speculate on the prices of commodities, such as gold, silver, oil, and agricultural products, without directly owning the physical assets. Trading CFDs provides investors with limited access to different assets, allowing them to enter contracts based on the difference in price from the opening to the closing period of the trade.
For investors who use the TradingView app, commodity CFD surge is crucial as it reflects changes in various industries and opens opportunities to explore volatility and swift price movements in the market. Investors will find updates here to help them navigate CFD trading in the volatile market.
Key Drivers of Commodity Price Volatility in 2024
Five key factors influence commodity prices in 2024. These are:
- Supply and Demand: Fundamental changes in the supply and demand of commodities have impacted prices and are the primary drivers of volatility in the market. An excellent example is the current oil production cuts by OPEC+, which will extend into 2025 as the organization seeks to stabilize oil prices.
Geopolitical Developments: Political conflict, especially in the Middle East, creates uncertainty in the oil market, and escalating tension may shoot prices higher. The Ukraine-Russia conflict also impacts global commodity flow, especially in agricultural products.- Macroeconomic Factors: Inflation rates, monetary policies, and global economic events influence commodity prices by influencing demand for certain assets. For instance, higher inflation typically increases food and energy prices and changes consumer spending.
- Market Speculation: Investors also influence commodity prices when speculating on them, especially through CFDs. As traders react to macroeconomic indicators and economic events, financial speculation amplifies price movements, resulting in higher market volatility.
- Adverse Weather: Extreme weather and changing climate patterns left crop harvests short in 2024, hiking prices as supply fell. The prices of cocoa and coffee increased as pressure mounted on farmers to meet growing demand.
Strategies for Navigating Uncertainty in the Commodities Market
When there are no clear trends in the commodities market, investors must carefully evaluate macroeconomic indicators to determine future direction and plan their investments. There are three strategies for navigating market uncertainty:
- Analysis: Investors must combine fundamental and technical analysis to understand the narrative around commodities and identify points of interest where they can enter and exit trades.
- Portfolio Diversification: Diversifying funds over various CFDs ensures that risk is spread and that investors can maximize contract returns.
- Risk Management: Proper risk management manages volatility using position sizing and stop orders. This is important for investors to gain exposure to CFDs they prefer.
Staying informed on global economic indicators, weather and climate forecasts, and geopolitical developments ensures that investors can make logical and data-driven decisions when trading commodities.
Commodities in Focus Include Oil, Gold, and Agricultural Products
The global oil and gas industry has endured a tumultuous period in the last few months, keeping governments and oil traders on edge. Political developments in the Middle East, especially the Iran-Israeli tension, may change the oil market dynamics as Europe and the US approach Winter.
Brent currently sits around $76 after falling from its 7-month high price of $90.48 (10 April 2024), while West Texas Oil trades at $74, down from its 7-month high of %87.89 (12 April 2024). Crude oil trades below the 200-day SMA on the daily chart and may break above the SMA if the price moves higher.
Gold remains a value store and is widely considered inflation-proof as the dollar’s purchasing power reduces. Geopolitical risks, expectations of continued monetary easing, and fiscal imbalances will impact gold prices in 2024 and beyond. Spot gold hit a record high of $2,592.39 on 18 September 2024, following the Federal Reserve’s interest rate cut of 50 percentage points.
Agricultural commodities have experienced mixed yields in 2024, with the prices of crops like corn, wheat, and soybeans falling thanks to bountiful harvests. Dynamic climate conditions impact global agriculture and will be essential for CFDs in the commodity markets.
The Role of Macroeconomic Factors in Commodity CFD Trading
Macroeconomic factors play crucial roles in commodity CFD trading. Investors consider these factors, framing their sentiments and influencing demand and supply. Higher inflation rates push investors to seek tangible assets, increasing commodity prices as demand increases. The interest rate policy also impacts consumer behavior, impacting commodity demand at different levels.
Investors track growth indicators, such as manufacturing and employment data, to predict the demand for commodities. This influences their CFD positions and, hence, the price of commodities.
Risks To Consider When Trading Commodity CFDs
Investing carries significant risks that traders must account for when trading commodity CFDs. Leverage, market volatility, weather, and geopolitical risks are pivotal factors when trading CFDs. Leverage can amplify gains and increase potential drawdowns when sudden price swings catch traders on the wrong side. Political instability can disrupt supply chains and make markets unstable and unpredictable.
What To Watch For as an Investor
Commodity traders follow economic calendars to keep up with financial market events. Keep up with interest rate announcements, employment data releases, and political developments from economic calendars updated 24 hours a day, and follow analysis from industry stakeholders. Plan investments and make data-driven decisions when trading commodity CFDs.