2 factors that may set the trend in commodity market in 2023

There was an abrupt rise in commodity prices when Russia invaded Ukraine in the last week of February. Supply constraints and worries about inflation have helped prices to surge to their record or multi-year highs.

The war has also caused a tremendous amount of human suffering and a significant blow to the global economy.

Meanwhile, a two-decade-high US dollar and concerns over the economic downturn in China, the largest commodity consumer, eased most of such gains in the second half of the year.

The aggressive US rate hikes had a significant cascading impact across emerging market economies.

After keeping interest rates near zero since the beginning of Covid, the US FOMC started raising interest rates in the first quarter of the year. The US Fed now hoisted rates seven times in 2022, raising the base policy rate by more than 4 percent.

The US rate hike caused a withdrawal of investment from emerging economies. This is due to investors shifting to the perceived safety of the US dollar, which is now more attractive with higher interest rates.
Taking cues from the US Fed, central banks across the world simultaneously hike interest rates in response to inflation.

Precious metals opened on a positive note and extended their bullish rally in the first quarter. Since March, overseas gold prices have lost their momentum and traded choppy.

Meanwhile, domestic gold prices surged to near-record highs and traded solid. So far since January, gold in the Indian futures market gained about 15 percent. Prevailing domestic demand and the weak Indian rupee supported the trend.

Aftermath of Russia’s invasion of Ukraine, the former has been facing several economic sanctions from the US and European Union. This includes freezing the assets of the Russian central bank, barring Russian banks from international transactions, and an embargo on Russian oil and gas.

As global supplies were already tight, the Russian invasion caused a negative supply shock disrupting supply of oil and gas as the country is the leading exporter of energy products in the world market.

Europe was the largest consumer of Russian fuel. Since Russia started cutting energy supplies to European countries, there was a severe energy crisis in the entire region leading to surging inflation.

Meanwhile, crude oil prices in key NYMEX platforms hit a fourteen-year high in March. Although prices cooled down from their near-record highs, the commodity remains extremely volatile due to uncertain macroeconomic conditions.

Supply uncertainties skyrocketed base metals prices in the first three months of the year but cooled down later. Feeble demand from China weighed down the base metals in the second half of the year.

China is the largest consumer of industrial metals and accounted for more than 50 percent of the total global consumption value.

Demand from China has deteriorated due to a deepening economic slowdown. A combination of factors like strict pandemic-related lockdowns and a weak property market adversely hit the metal complex.

Looking ahead, commodity prices will remain volatile in the coming year. Despite high bank rates and a strong US dollar, domestic gold prices are likely to perform well due to stable domestic demand and a weak INR. Oil and other industrial metals possibly perform lacklustre in the immediate run due to feeble China demand and the strengthening of US dollar.

Anyhow traders continue to take cues from the US Fed’s policy decisions and China’s economic numbers to set a medium to long-run direction on commodities.

(The author is Head of Commodities at

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