A Big Bounce Back In Commodity Prices Is Coming – Are You Ready?

Commodity Prices Retreat as Bond Rout Roils Sentiment

After a stellar run last quarter, Commodity prices have pulled back this month as traders exit profitable positions to offset losses in other asset classes triggered by a shift in narrative from a soft landing to an era where interest rates stay higher for longer.

A sense of crisis is creeping back into the markets at the start of the fourth quarter, amid growing concerns about U.S domestic politics as well as pertinent warning signs that the global economy could be heading for a full-blown market rout.

Until Central Bankers finally call time on their 18-month rate-hiking cycle, market uncertainty will continue to weigh heavily on sentiment. Something serious may “break” in the meantime as the sound of rivets popping around the world gets louder.

An unrelenting selloff in government bonds has sent global treasury yields to levels last seen prior to the Global Financial Crisis in 2007-08.

The U.S 10-year treasury yield rose to 4.8% on Wednesday. The 30-year bond breached 5% as did the 10-year Italian bond. Meanwhile, Europe’s benchmark security, the 10-year German bund, surpassed 3%. It’s looking like a slow-motion train wreck, with worrying echoes of the October 1987 Wall Street crash.

Government borrowing costs influence everything from mortgage rates for homeowners to loan rates for companies.

The speed of the bond rout has sparked alarm bells across the stock market with all major equity indexes wiping out their gains for the year. The S&P 500 erased all of its gains for 2023 and tumbled into correction territory this week, having fallen more than 40% from its July peak.

And it’s not alone.

The Dow Jones Industrial Average, Russell 2000 and the Nasdaq 100 have also given up all of their gains for the year.

And the sell-off might not stop there!

Earlier this week, Federal Reserve Chairman Jerome Powell sent the markets into tailspin after stating that another interest-rate hike is potentially on the table for the October 31 – November 1 meeting.

As we transition through the final quarter or 2023, the list of known risk factors is expanding and that’s before any unknown unknowns crop up. Most economists have long felt that the Fed has gone one rate hike too far. Now with odds increasing of another rate hike coming next month – the biggest risk is that the Fed may overdo it.

The further we go into restrictive territory, the more likely it becomes that we begin to see black swan events – just like we have seen recently with the second, third and fourth largest bank failures in history.

During times like these, finding a safe place to store money becomes particularly important, which would explain why Commodities are everyone’s favourite trade right now! Any substantial pullbacks should be viewed as buying opportunities because prices won’t stay low for long!

Gold Price Forecast

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