- Compared to standard stock trading; commodity trading Strategies take on a distinct hue. The range and variety of variables that affect a commodity’s price and the trade outlook have expanded significantly. A trader’s success or failure in commodities depends on the following variables.
- The demand and supply of a product are the two most crucial aspects of the agriculture industry. Consequently, the price of agricultural commodities may spike for several reasons, including increased demand (such as from China) or a temporary lack of supply.
- Changes in the value of currencies also have a significant role in determining commodity prices. For example, the value of the dollar index has a disproportionate impact on commodity prices since most commodities are priced in dollars. Typical examples are gold and oil.
- One of the most significant elements that affect commodity prices is inflation. Ordinarily, moderate inflation indicates a healthy economy, which boosts commodity demand. Indeed, this holds for the vast majority of agricultural goods and metals.
- The exchange of information between the United States and other countries is crucial. For example, commodity prices are influenced by the Fed’s monetary policy, employment and output figures, manufacturing and services purchasing managers’ index readings, and the positions of national central banks.
- The demand and supply of certain commodities are affected by their volume. For example, Chinese demand is a significant factor in pricing all industrial metals since that country accounts for half of global use. The price of crude oil is also affected by OPEC’s policies and the amount of oil in storage in the United States.
- New Perspectives on Commodity Trading
1. Cautious to negative on MCX Crude.
Since OPEC has less power to manipulate prices, MCX Crude might see selling pressure. While Russia has joined the OPEC consortium in calling for production cutbacks, the US appears to have several advantages. Firstly, the United States has raised its crude supply by 1.20 million barrels per day (bpd). While the world’s floating storage capacity is slowly depleting, the United States is sitting on a massive stockpile of petroleum reserves. In addition, that may limit price increases. Thirdly, since Trump has officially left the Paris Climate Agreement, the United States may significantly expand its shale gas capacity. It’s essential to keep in mind that the $45–50/bbl range is much closer now that the shale breakeven has dropped. Finally, crude oil prices vary and might come under more pressure due to the United States taking up the “Swing Producer” position formerly held by Saudi Arabia.
2. MCX Gold could gain from the uncertainty factor.
According to projections by the World Gold Council (WGC), the 2017 demand for gold may be similar to 2016. India and China continue to be the world’s two most significant consumers of gold, but this demand will only determine the metal’s price. Safe-haven demand for gold will increase due to many factors, including Trump’s exit from the Paris Accord, America’s inward-looking strategy, divisions between Germany and the US, tensions in North Korea, and the dangerous Middle East. In addition, gold may gain prominence as a non-fiat store of value when central banks like the Federal Reserve, European Central Bank, and Bank of Japan dramatically dilute the value of their currencies via money creation. In the following weeks, demand for gold will surge, driving up its price.
3. MCX Copper – Use any bounces to sell
Although copper’s prognosis is dim, investors would be wise to wait for a rebound before selling the commodity, as it has already been discounted for over two weeks. First, the United States has yet to begin its projected investment in infrastructure, estimated to reach $1 trillion. Copper merchants now have doubts because of this. Second, the recent downgrade of China by Moody indicates that the country’s shadow banking industry will be subject to considerably greater oversight. A slowing Chinese economy would naturally lead to lower copper consumption, and this point hardly needs restating. As a result, copper prices will be under pressure, although waiting for price rebounds before selling copper is preferable.
4. Short-term negative on MCX Zinc
Many zinc mines and smelters in China’s Hunan Province were closed for environmental inspection, causing a metal shortage. Now that the mines have passed their inspections, their output is flooding the market, putting downward pressure on pricing. Until this changes, expect this to persist. The dollar’s strength will also impact the value of MCX zinc. The dollar index negatively correlates with zinc prices, so if the US Federal Reserve raises interest rates at its June meeting, the currency will gain, and zinc prices will fall. As a result, we expect MCX zinc to perform poorly shortly.
5. Long Trade on NCDEX Jeera on supply shortfall
Over 70% of the world’s jeera (cumin) supply comes from India, making it India’s most valuable agricultural export. Other smaller-scale manufacturers include Syria and Turkey. In contrast to last year’s harvest of 4-5 million metric tons, this year’s jeera harvest is expected to exceed 2.5 million metric tons. Since there are no viable alternatives, exports will continue to rise despite the price increase. In reality, exports from India increased by 30%, and this upward trend seems set to continue. Increasing open interest is another sign that prices may be rising.
These are only a few of the essential commodities trading strategies. Traders should talk to their brokers and financial advisers before making long or short trades based on these suggestions.
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