In March, the Commodity Index CRB weakened due to lower oil prices, higher US yields and a higher US dollar. However, since April the sentiment towards commodities has improved again. The outlook for the US and Chinese economy remains good and this supports commodity prices. In addition, US yields have stopped rising and they have even declined somewhat. Higher yields make the financing of new projects more expensive and they also make commodities less attractive as investment because they don’t pay a coupon or dividend.
We have a mixed outlook for commodity prices. On the one hand we expect lower prices in oil, gold and silver. On the other hand, the agricultural commodities market sentiment should improve when economies re-open on a larger scale. And finally, the outlook for industrial metal prices will remain constructive. This is mainly because of strengthening industrial activity in both the Chinese and the US economy. The EU economic recovery will set in later.
Prices will remain relatively high coming months. We think, however, that prices will remain very sensitive because of the elevated downside price risks due to a higher US dollar. This means that higher price volatility will persist for the time being.