Commodities are likely to struggle for a while

Most commodity prices, but especially energy and industrial metals, fell this week. Concern about demand in advanced economies, particularly in the US due to the banking sector problems, contributed to the declines. What’s more, China’s April PMIs pointed to a small contraction in manufacturing activity for the first time since December, and there were slowdowns in construction and services growth. In this environment, it is not really surprising that gold and silver prices rose. We think that most prices will continue to struggle over the next few months due to slowdowns in advanced economies.

Next week, the meeting between President Biden and Republican leaders on Tuesday to discuss the US debt ceiling will be closely watched. We think that political talks will go on for some time before an agreement to raise the debt ceiling is finally reached, which could weigh on risk appetite and drag commodity prices lower (with the possible exception being precious metal prices). Elsewhere, we’ll get US inflation data for April on Wednesday. We forecast core inflation to slow from 5.6% in March to 5.3% in April (consensus: 5.4%), which could give prices some support if interest rate expectations fall.