In 2023, S&P Goldman Sachs Commodity Index fell by 12% but within the first court months of 2024, that fall was reversed as the index rose to January 2023 start levels. Within this pattern of recovery, there are two major problems. First is that the reversal of 12 months happened within 4 months. Second, the rise was not limited to one product or category.
From January 2024 till date, various commodities ranging from precious metals like Gold to agricultural produce such as Cocoa and Coffee have witnessed sharp price rises ranging from 10-30%.
This price rise does not only impact the books of Hedge funds and other financial institutions who hold positions in them. But this impacts the corporates, consumers and governments as well especially if the food and energy category price rises.
Food inflation in major countries has already started to rise again putting further upside pressure on overall inflation. The only category that is stable for now is energy. If there is an escalation of conflict in the Middle East then this category will witness a large price rise.
All these trends need to reverse drastically over the next few months otherwise the corporates would be forced to take price hikes dampening any rate cut hopes.
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