Focusing on Commodities in 2023 - Is It a Good Idea?

February 8, 2023 (Investorideas.com Newswire) In the pandemic's aftermath, the global focus turned to productive capacity. causing commodity prices to be on the run. World food prices reached record highs in 2022 on the back of supply bottlenecks and shortages.

A pick-up in commodity price volatility naturally attracted the attention of online traders. Many online brokers today offer CFDs, which enable traders to take advantage of price movements, even without buying the underlying commodity. Now that these instruments are broadly available, it would be a good idea to further explore the commodities market in 2023.

Price volatility to remain elevated

Despite a temporary moderation in commodity prices, there is still scope for renewed volatility this year. Geopolitics, disruptions caused by weather and a sluggish recovery in commodity production might push prices higher.

On the flip side, weaker economic activity around the world means less demand for commodities, acting as a drag on the market. The start of the year was dominated by optimism surrounding China's reopening. As the largest importer of commodities, this is good news for global demand. However, things could change later and analysts at Esmartinvest, a leading online CFD brokerage, expect economic growth to moderate substantially in the Western World.

Since commodity prices might rise or fall sharply, focusing on short-term trends might be a good idea. At the same time, greater uncertainty means inexperienced traders can find it hard to properly time their trades.

Imbalance between supply and demand

A market economy sets prices based on the balance between supply and demand. Commodities are more expensive today when compared to late 2019, because global production is smaller. Such imbalance leads to more volatile valuations, which is where traders can possibly spot potential trade setups.

When using CFDs based on commodities with brokers like Esmartinvest, it's possible to turn the negative implications of commodity prices into opportunities. Companies in the space are forecasting that supply needs will get back to where they were a few years ago. That leaves prices vulnerable to sharp spikes up or down, influencing economic activity.

Global inflation dynamics

During the last year, there has been a significant rise in inflation globally. That materialized in higher commodity and service costs. For the time being, the disinflation process has started, as the Fed's chairman Jerome Powell recently stated.

This means price increases are expected to continue moderating over the upcoming quarters. However, it's not a preset path downward, as risks of a new overshoot in inflation persist. Markets fear less from a new surge in price pressures, which is why volatility in commodities contracted in the first place.

In case this ideal scenario will be called into question later on, that might be a good time to reconsider commodities trading since new trade opportunities might show up in oil, gold, corn, coffee, or other popular assets.

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