Top 4 Commodities to Watch in May 2024

Top 4 Commodities to Watch in May 2024

Reading time: 6 minutes

With geopolitical risk remaining at the forefront of markets and the US Federal Reserve unlikely to cut rates anytime soon amidst persistent sticky inflation, the commodities market is an interesting space to navigate as the month gets underway. As a result, the FP Markets Research Team has joined forces and selected four commodities that might be worthy of the watchlist in May.

Gold:

Gold is an interesting market at the moment and is not responding as you would expect, considering interest rate expectations (the US Federal Reserve is expected to keep the Fed funds target range restrictive longer than expected). The rationale is that higher yields offered in government bonds present opposition for the precious metal, which is not an interest-bearing asset. What this means is that higher yields often mean lower prices for gold and vice versa, and we’re not seeing this play out right now. 

While gold has slipped from its all-time high of $2,431 an ounce, it remains up by an impressive +11.0% year to date. Some of the drivers behind the price of gold are central bank purchases from emerging market central banks as well as increased demand from investors across Asia. This is driven by increasing geopolitical risks, fear of sanctions, economic uncertainty and fear of currency depreciation. Collectively, this is likely to keep the price of gold higher for the foreseeable future, according to some analysts.

XAU/USD, therefore, is a market worthy of any watchlist. The trend is unquestionably to the upside and corrections continue to be bought into. This means the latest correction from record highs could soon find support. 

FP Markets Analyst Aaron Hill expressed his thoughts on the latest price action, commenting: ‘Support levels at $2,223 and $2,280 are of note and could be areas from which dip-buyers make a show. Ultimately, I am expecting the price of gold to remain bid and eventually refresh record highs’.

Copper:

Copper prices have been on a tear recently; year to date, copper futures are up nearly +20.0% and recently reached fresh two-year highs, underpinned by several drivers. These include renewed inflationary fears and industry demand, together with sanctions on Russian metals, supply chain risks – concerns on whether copper’s supply can keep up with the pace of increased global demand – and optimistic market forecasts. Of note, growth in Artificial intelligence (AI) could also bolster demand for the red metal, with AI and data centre demand forecast to increase copper demand by 1 million tons by 2030, as per the commodity trading company Trafigura.

Technically, corrections in April have been limited, therefore the current correction seen in this market may be bought into this month. The FP Markets Research Team is closely watching the most recent correction as it nears support from $4.4420.

Coffee:

Despite the latest correction from year-to-date highs, the price of coffee is up +15.0% on a year-to-date basis. Recent gains were, in part, fuelled by worries over extreme weather and aging trees across Africa, Vietnam, and Brazil, thus increasing fears of a tense supply situation. 

The FP Markets Technical Research Team added that the current correction could be viewed as an opportunity to consider bullish scenarios for those looking to jump in on the current uptrend. The support area between $202.87 and $206.75 may provide a technical floor in which to work with, positioned reasonably close to a trendline support line, extended from the low of $143.40.

Cocoa

Volatility in the cocoa market has increased dramatically in recent weeks, recently soaring to a record high of nearly US$12,000/metric ton in April. Cocoa has not been this volatile since the late 1970s. According to research, the unprecedented surge in prices has recently led to traders liquidating positions as recent cocoa prices have made it too costly to maintain positions, given the sharp increase in margins. 

Where does the cocoa market go from here? Well, following Wednesday’s -12.3% decline, a demand area at $7,435-$8,060, which initially held price action higher on Tuesday, is under pressure and could lead sellers to look towards another layer of daily support from $6,483.

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