Published by Harvest Exchange Traded Funds

As the global economy experiences its broadest synchronized growth upsurge since 2010, the demand for commodities – base metals and materials – is expected to increase, sending prices potentially higher. Typically, commodity prices rise in the wake of stronger economic growth.

Incidentally, for the first time since the 2008-09 financial crisis, global growth is expected to increase over the next two years, based on forecasts by the International Monetary Fund (IMF).
While commodity prices strengthened during the second half of last year, rising geopolitical risks in the Middle East, and US-initiated trade wars, particularly with China, have resulted in a pull-back in base metal and material prices over the last quarter. However, it is anticipated that the decline in prices will be temporary and the outlook remains positive.

Concomitant with the benefit of increasing demand, the uptick in prices will be supported by supply constraints resulting from cutbacks in production over the past five years when pipeline projects were mothballed on the back of falling prices and a build up in inventories.

Therefore, until new production comes on stream, supply will be constrained, creating conditions for higher prices for base metals.

On the other hand, the price of gold is expected to climb higher on the back of growing systemic risks in the global economy, resulting from tensions in the Middle East, North Korea and Russia.

The price of base metals – copper, nickel, zinc and aluminum – are all forecasted to be higher over the next two years.

Source: Scotiabank Commodity Price Index, April 2018

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