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Gold, oil, cocoa prices rally

Key takeaways

  • Gold has climbed above $2,200.
  • Oil is trading above $80 per barrel.
  • Cocoa prices just hit an all-time high.

Commodity prices have generally been declining for nearly 2 years since 2022’s shockflation surge (see chart below). But there’s been a perceptible change in that trend thus far in 2024, particularly for a few key commodities that could cause some complications for stocks.

Source: FactSet, as of March 28, 2024.

Here’s what has been happening lately in gold, oil, and cocoa prices, and what those recent trends could mean for markets.

Gold breaks through $2,000

For years, $2,000 proved to be an insurmountable level for gold that had some psychological importance—based on trading patterns. Gold prices climbed near that price level several times in recent years, only to recede. In anticipation of rate cuts later this year, along with some other factors, gold finally broke above $2,000 in early March. It is currently trading above $2,200, as of late March (see chart below).

Source: FactSet, as of March 28, 2024.

Gold bugs can tell you it's been a volatile ride post pandemic. Gold prices were crushed during most of 2022, as interest rates were rapidly rising and the dollar was strengthening (gold prices tend to fall when the dollar increases and they tend to rise when the dollar decreases).

During the first half of 2023, gold prices benefited from widespread expectations that a mild recession could impact global markets (many investors view gold and other real assets as a bulwark against economic uncertainty). In anticipation of rate increases halting (and potentially reversing), gold prices began their most recent ascent in October 2023—and they haven’t slowed down. Another factor that continues to help drive prices higher is central banks buying gold—an increasing amount of it. Many central banks have been buying more gold because they believe it may hold its value better than currencies and bonds, and to help provide diversification with other financial assets.

Where are prices headed now? The Hightower Report's March 25, 2024 Weekly Metals Market Outlook (which you can find on in the reports section on the markets & sectors research page) notes that, "gold may run into some resistance at these price levels." They also point to an expected impact of rates and the dollar. “The US dollar showed significant strength at the end of last week and appears to have entered an uptrend that is likely to provide consistent headwinds for precious metal prices,” according to Hightower. The report also highlights recent comments from the Fed’s Bostic suggesting only one interest-rate cut could happen this year, which would result in rates staying higher for longer than many expect.

With that said, momentum has been on gold's side over the past 6 months and could continue. Movements in gold prices can influence materials stocks, but typically have a limited impact on other segments of the market.

Oil prices creep higher

Meanwhile, oil prices bubbling up could become a rising concern for many stocks. Thus far in 2024, West Texas Intermediate (WTI, which is charted below) and Brent Crude prices have gained more than 18% and 15%, respectively.

Source: FactSet, as of March 28, 2024.

Oil prices are a critical factor for stocks, as recent history has shown. 2022’s bear market was due in large part to WTI prices hitting an all-time high near $124 per barrel during the summer of that year, and 2023’s rally was helped by oil prices falling from the 2022 peak to under $67 per barrel by the beginning of spring 2023.

The Hightower Report's March 25, 2024 Weekly Energy Market Outlook emphasizes supply pressures from both new and sustained conflicts in oil-producing nations, as well as demand signals, as reasons why oil prices could remain elevated. "Middle East developments and the terrorist attack inside Russia create fresh uncertainty from 2 supply regions," the report comments, and it also notes that, "crude oil should draft support from signs of improving seasonal implied gasoline demand."

It might take an easing of global tensions for oil prices to slow their 2024 uptrend. Rising oil prices could benefit the energy sector but be a headwind for most other sectors.

Cocoa prices hit record

Another commodity that’s captured headlines recently is cocoa, whose prices have been rising for nearly a year and hit an all-time high of $10,080 per metric ton this past week. Crop production has been hurt by black pod disease and swollen shoot virus, particularly in Ivory Coast and Ghana—which account for 60% of global cocoa production.

There’s a supply deficit of 374,000 tons for the 2023-2024 season, according to the International Cocoa Organization, and the industry has said consumers could see more noticeable price increases for chocolate toward the end of this year as a result.

With that said, Hightower calls out a potential discrepancy between some short- and long-term supply and demand dynamics. "Ivory Coast and Ghana’s port arrivals [are] estimated to be down 28% and 35% from a year ago, respectively, and demand has been resilient in the face of record high prices," Hightower states. "But there will be articles in the mainstream media in front of the Easter holiday on the high cost of chocolate that may weaken cocoa’s near-term demand outlook."

Rising cocoa prices could be a headwind for restaurants and other food producers that use it as an input.

Keep an eye on commodities

The impact of commodity prices is always an important factor for investors to consider. Typically, commodity prices are broadly influenced by the business cycle (they generally rise when the economy is expanding and demand is relatively higher, and they generally fall when the economy is contracting and demand is relatively lower). But recent events around the world may continue to exert a greater influence on some key commodities for the foreseeable future.

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Past performance is no guarantee of future results. Stock markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. Investing in stock involves risks, including the loss of principal. The commodities industry can be significantly affected by commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions. Investors should be willing to accept the risks that come with exposure to foreign and emerging markets, including political, economic and currency volatility. The energy industries can be significantly affected by fluctuations in energy prices and supply and demand of energy fuels, energy conservation, the success of exploration projects, and taxes and government regulations. The precious metals and gold markets can be significantly affected by international monetary and political developments, such as currency devaluations or revaluations, central bank movements, economic and social conditions within a country, trade imbalances, and trade or currency restrictions between countries. Fluctuations in the price of precious metals and gold often dramatically affect the profitability of companies in the precious metals sector. The precious metals and gold markets are extremely volatile, and investing directly in physical precious metals and gold may not be appropriate for most investors. Bullion and coin investments in FBS accounts are not covered by either the SIPC or insurance "in excess of SIPC" coverage of FBS or NFS. Changes in the political or economic climate, especially in gold producing countries such as South Africa and the former Soviet Union, may have a direct impact on the price of gold worldwide. The Hightower Report is not affiliated with Fidelity and the views expressed in this report are not Fidelity's.

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