Where Are Gold & Oil Headed During Q2?

The second quarter is shaping up to be the best time for commodities in general, even though they have already moved higher in anticipation.

The US and UK are expected to fully open their economies by the summer. This will, therefore, bring a return of demand for a substantial amount of consumer goods.

As the demand for raw materials increases, supply is still being curtailed due to the unabated COVID situation in many of the production areas, especially Brazil. The global transportation system still remains unbalanced, with shipping containers piled in ports full of goods that were unable to reach their destination due to COVID restrictions.

gold oil forex

That means those containers aren’t available to ship goods for which there is demand. Consequently, this drives up shipping prices and makes supply even tighter.

Prices rise but for how long?

Normally, a lack of supply and increasing prices would be an incentive for new players to get into the market. However, everyone understands this situation to be transitory as economies reopen and logistics rebalance.

It doesn’t make sense to invest in a container building facility, or other major logistics processes to take advantage of the higher prices. This is because the short period of high prices might not last long enough to turn a worthwhile profit.

So, we’re likely to see constrained supply and increasing demand over a relatively short period, from now until the start of summer. This might provide some interesting investment opportunities in commodities.

However, there are two, in particular, that stand out for interestingly similar reasons: gold and oil.

Black gold

The uncertainty around the reopening process is likely to produce some ups and downs in the markets. This is to be expected as investors reevaluate risks as we go through the motions and unforeseen hiccups along the way.

These moves back and forth in safe havens to risk assets could have an effect on both gold and oil, but in opposite directions. Ups and downs in assets provide interesting opportunities to make money. And the combination could be a way to hedge risk over the next couple of months.

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