Commodities Price Prediction

While many investors use commodities to hedge against inflation, investing in commodities could diversify your investment portfolio, even with inflation moving lower toward the U.S. Federal Reserve’s target. A detailed commodities price prediction can help you decide whether it’s a good time to jump into the commodities market.

Global economic growth has steadied as the impacts of the COVID-19 pandemic, the resulting recession, high inflation and Russia’s invasion of Ukraine have receded over the last year.

Risks like the conflict in the Middle East can undo a commodities forecast. However, the current commodities price prediction is for overall global commodity prices to end 2024 lower and continue falling through 2026.

Historical Trends in Commodities Prices

Commodities are the basic goods or raw materials used to make products sold to consumers. There are three basic classifications of commodities: energy, such as crude oil or natural gas; metals, such as gold, copper and iron ore; and agriculture, such as coffee, wheat and soybeans.

While commodity prices vary widely, they’re determined by supply and demand. Prices can be volatile and fluctuate significantly over the short term and many factors, including economic shocks, geopolitics, natural disasters and investor sentiment, can influence them.

Trading basic goods and raw materials dates back to the beginning of civilization when people bartered or traded basic goods for others (such as sheep for copper). Those people recorded the quantities, dates and other details of these transactions, pointing to the early beginnings of commodity contracts.

Commodity futures exchanges developed in the 1800s after buyers and sellers of agricultural goods demanded standardized contracts. In the late 19th and early 20th century, commodity prices fell 30% – 70% because of supply disruptions caused by wars before rising by 12.5 times between 1945 and the present.

After World War II, the demand for commodities increased with economic expansion and developing economies emerged. Large price swings hit the markets after global currencies were no longer tied to gold in the early 1970s.

In recent decades, geopolitics, new producers and developing economies have all affected commodity prices.

Another major factor impacting commodities markets is technological advancement, which has improved production processes, changed consumption patterns and reduced costs. Innovations in transportation have further lowered costs and created opportunities for international trade.

Current State of the Commodities Market

For most of 2024, commodity prices, except gold, have been relatively flat. Early in the year, energy and food prices bounced back after a downturn, stoking fears of lingering inflation. But prices eventually stabilized, allowing the air to disappear from inflation.

However, Israel’s continued war with Hamas and Hezbollah threatens to draw Iran into the conflict, creating a risk for oil production. That could drive up the oil price, although it would require depleting an ample supply of crude oil that’s already suppressing oil prices.

Commodity prices have also been impacted by Donald Trump's election to the presidency. In the days following Trump’s victory, commodities prices dipped amid fears that Trump could set off a tariff war across the global economy.

Gold fell 1.8% during the week of Nov. 8, 2024, the worst drop in five months. Gold prices weakened after the dollar’s value rose due to Trump’s election.

Copper also gave up the ground it had gained in five months. Traders are concerned that Trump might roll back green energy initiatives, including subsidies for electric vehicles. Copper is central to electric vehicle batteries.

Predictions for Future Commodities Prices

In its October commodities forecast, the World Bank said it expects global commodities prices to dip by 3.4% by the end of 2024, fall by another 5.1% by the end of 2025 and drop 1.7% in 2026. If it were to prove true, this commodities price prediction would leave aggregate commodity prices at their lowest since 2020.

Price projections for individual commodities are mixed. However, improving supplies and moderate global economic growth signal modest price movements. 

Crude oil prices are leading the downturn and they are expected to decline for four years through 2026. Metals and agriculture are projected to remain stable.

Crude oil prices are under tremendous downward pressure. More players, including the U.S. and Canada, are producing oil at a time when oil demand is slipping. 

China, the world’s largest importer of crude oil, recently announced an economic stimulus. However, the country’s economic growth has slowed due to a real estate bust, driving down demand for oil.

Market watchers also note that the Organization of Petroleum Exporting Countries Plus (OPEC+) has ample oil capacity and may follow through on an earlier announcement to increase production. While OPEC+ has voluntarily cut production to support global crude oil prices, it may increase pumping to maintain market share.

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Factors Affecting Future Commodities Prices

The impacts of the global shocks of the COVID-19 pandemic, inflation and Russia’s invasion of Ukraine have subsided. Even so, risks persist, especially with tensions between Israel and Iran threatening to overflow into a full-scale conflict.

While an oversupply of global oil and decreased demand from sluggish growth keep prices low, the Middle East conflict could disrupt oil production in the region. China could also produce stronger-than-expected growth from its stimulus, which would lift commodity prices as the ramifications of each roll through others.

Accelerating growth in the U.S. and the impacts of climate change on agriculture, such as drought or powerful storms, could also support commodity prices.

However, the World Bank has warned that upward pressure on food and energy prices could raise further concerns about inflation, leading to the end of interest rate cuts and further dampening global economic growth.

Consider Whether Investing in Commodities Is Right for You

As an investor, commodities are more attractive when inflation is high and interest rates are rising. With the former coming down and the Fed continuing to cut the latter, you might think of something other than commodities and commodities futures as viable investments.

The option is still on the table, though it might be challenging to buy low and sell high. If you choose to trade in commodities, expect a lot of price movement.

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