Covid-19's Effect on Commodities

Covid-19's Effect on Commodities

There have been some significant events in recent years that have impacted on the global economy, but we’ve never experienced anything like the pandemic that we’re currently facing. With the Bank of England predicting that we’re facing the worst recession in 300 years, there’s the potential for fluctuations in the economy for years to come.

While we don’t yet know what this will look like and whether we’ll see inflation, deflation, or the numbers will remain static, we do know what’s happening to currencies right now. At the moment, COVID-19 is causing the value of currencies around the world to drop.

For instance, the South African rand – which was already at a precarious stage due to a series of economic issues in the country – saw an emerging market sell-off. However, there are some currencies that are starting to see an uptick. Mexico’s peso was an all-time low for two months running, however May saw it shoot up to an eleven-week high.

The impact on commodities

This uncertainty is having a knock-on effect on commodities. Energy and metals are the two that have been hardest hit. As the world went into lockdown, demand for oil and other commodities linked to transport was low. While crude oil prices fell by 50% between January and March, it was April that saw the biggest drop, with some trading for this commodity at negative levels.

Energy prices, including natural gases and coal, also saw a shift. However, this was not quite such a dramatic drop, with forecasts suggesting that value will have fallen by 40% and a swift rebound by 2021.

Although metals fell in price, with zinc and copper seeing the biggest drop in value, and a predicted fall of 13%, there are some signs of progress. Steel prices are set to rise for the first time since 2018. This metal has fallen in value in recent years and the pandemic contributed to lower prices, but now it seems the cost of steel could spike suddenly.

Is now a good time to invest in commodities?

Commodities such as metals and energy have always been volatile markets to trade in. While on the one hand there is the risk associated with the fallout of an oil spill, for example, there are also profits to be made and there is potential for these commodities to be lucrative.

And with the markets affected by the pandemic, it may not seem like the safest time to invest. But by jumping in now and investing in commodity trading, there’s the chance that you could invest when prices are low, and the payout is high as these industries bounce back while lockdown restrictions continue to be lifted around the world.

Right now, the markets are fluctuating by the day. Ultimately, the decision to invest in commodities lies with you.