Fed Says Recession Is Coming, What Does That Mean For Commodities?

Recently published minutes of the March monetary policy meeting Fed – revealed that several members Federal Open Market Committee finally admitted that the economy is heading into recession later this year. Policy makers believe that the banking crisis, which resulted in the collapse of several major banks in the United States and Europe, set off a chain of events that will lead to tightening of lending conditions for borrowers - triggering a global credit crisis and eventually recession.

W during the recession unemployment is rising, purchasing power is shrinking, and world stock markets are falling. Finding a safe place to store your money becomes especially important, which explains why commodities are everyone's favorite trade item again! It is worth noting that the second quarter has always been considered one of the most lucrative periods of the year for commodities. Additionally, traders are now pumping capital into commodities at the fastest pace since the 2008 global crisis, from metals to energy to agriculture.

Since the beginning of this year, commodity prices have been in absolute positive territory – firmly positioning themselves as the best-performing asset class in 2023. Last week, gold prices approached summer 2020 record highs, a silver prices surpassed $26 an ounce. Gold is on an unstoppable streak, rising from $1800 in early March to over $2 an ounce - posting an impressive gain of over 060% in the last month alone.

Extraordinary times create extraordinary opportunities

The bull market also extended to gold priced in other currencies, such as British pounds, euros, Australian dollars, Canadian dollars and Japanese yen - sending prices up to all-time highs. While precious metals are currently in the spotlight, one of the best kept secrets in the commodity sector is agriculture. Unlike other commodities, the world cannot function or survive without agriculture. Whether the economy is in recession or boom, people still need to eat – making agriculture both recession and crisis resilient. These unique characteristics have made agriculture one of the hottest asset classes in the current economic climate we find ourselves in.

Unprecedented demand for security, diversification and high profits during this period of economic uncertainty drove prices down orange juice, coffee and Kakao soared to record levels. Meanwhile, sugar prices hit their highest level since 2011, gaining more than 150% from their 2020 lows. According to World Bank, agricultural commodity prices could increase by another 240% from current levels and remain high until 2026. So given the current macroeconomic backdrop, this could be just the beginning of the best year for the commodities market since the 2008 global financial crisis.