Top 3 Overlooked Factors That Drive Commodity Prices

“Ever wondered why commodity prices seem to change on a whim?” The most critical factors overlooked are fluctuating weather, financial volatility, and geopolitical uncertainties. The prices of certain products, including oil, gold, and other products of the agricultural sector, may be significantly affected by these unknown factors, even though supply and demand can play an important role. Now is the time to study unexplored factors that impact the world’s commodity market. Which undervalued factors affect the price of commodities? Investors may use Axiom Acordis to connect with professionals and obtain the information they need to understand these market movers.

1. How Do Commodity Prices Change Due To Geopolitical Uncertainty?

When discussing commodity prices, geopolitical issues are typically not the first thing to mind. However, they can significantly impact the economy. Examine the effects of trade restrictions or conflicts in regions with abundant oil on agricultural product exports. Market shockwaves brought on by these events result in price fluctuations and uncertainty.

If tensions increase in places that produce oil, such as the Middle East, the oil price might increase overnight. Middle East. Minor disputes among nations that produce essential goods like precious earth elements may cause the skyrocketing price. Why? The consequences of geopolitics are reduced supply, interruptions to trade routes, and a general sense of uncertainty.

The 1973 oil embargo altered the international economy. It was triggered by geopolitical upheaval and dramatically increased oil prices. The oil price more than doubled in a few months, an excellent example of how political upheaval may directly impact commodity prices. Oil is not the only product affected by decisions and political action; silver, gold, and crops like wheat can also be affected.

How are investors responding to this? It is imperative to monitor global politics closely. Political events, especially those in far-off countries, can affect the price of commodities globally. So, when the headlines scream about disturbance, remember that it might be more than just a news story; it could be the reason for a price hike or decrease.

2. How Do Weather And Climate Change Impact Commodity Prices?

Mother Nature has different rules than the market. Changes in weather and climate have significantly affected the prices of commodities, particularly agricultural commodities. An extended dry or even a wet season will affect the prices of everything from coffee to corn, which may impact yield development.

Think about the 2012 drought in the United States. The loss of the soybean and maize crops led to a global surge in food costs. After farmers suffered agricultural losses, animal feed prices, which mainly depend on these items, suddenly increased. This is not just a “bad season” issue; it’s a long-term trend. Climate change is increasing the frequency of unpredictable weather, which could significantly affect commodity prices.

Storms, hurricanes, and other extreme weather conditions can affect or delay production. In the case of refineries, some located in the Gulf of Mexico were destroyed by Hurricane Katrina in 2005. The storm caused the price of oil to rise. Additionally, unpredictable weather patterns can alter global supply chains and thus drive prices up across the board.

So, what can investors do? There’s much more to it than monitoring the weather forecast. Monitoring long-term climate change becomes increasingly crucial as shifting weather patterns can impact the demand and supply of necessities. Staying current on climate predictions and related news can help you forecast future price swings.

3. What Impact Do Exchange Rates Have On Global Commodity Markets?

While they may seem minor, currency changes affect commodity prices, which many know. US dollars typically calculate the price of goods like wheat, gold, and crude oil; a fluctuation in the dollar’s price can affect the cost of goods in other currencies. Consumers from abroad pay more for commodities because of the dollar’s strength. This means there could be lower demand, leading to lower prices. However, as the value of dollars decreases, foreign buyers can buy the goods, increasing cost and demand.

For example, oil prices may fall when the US dollar is strong because buyers using other currencies will find it more expensive. Conversely, a falling currency could lead to higher commodity prices. Despite being a minor adjustment, it may significantly affect global markets.

Additionally, consider the role of central banks and their monetary policies. If central banks hike the interest rate or take other steps to boost their currency, commodities could lose their appeal. However, inflation may occur as central banks reduce the interest rate, pushing up commodity prices as buyers look for safer alternatives.

Although the currency market is challenging to predict, knowing how it affects commodity prices is crucial. Monitoring the dollar’s strength and watching global economic data could teach investors about the possibility of changes in market dynamics and price trends.

Conclusion

“What if the next big price change is not about supply or demand?” Monitoring weather patterns, exchange rates, and geopolitical issues can help one anticipate market shifts more accurately. These sometimes-overlooked factors are essential for anyone who wishes to thoroughly understand the dynamics in the global markets since they significantly influence commodity prices. They could make or ruin your financial plan, so stay educated!