Five Key Charts to Watch in Global Commodity Markets This Week

Commodities are soaring, fueled by escalating conflict in the Middle East, war in Ukraine, wild weather and supply chain bottlenecks. Gold’s rally has made buying Brent with bullion cheaper. And risks to Brazil’s corn crop are driving up prices of the grain.

(Bloomberg) — Commodities are soaring, fueled by escalating conflict in the Middle East, war in Ukraine, wild weather and supply chain bottlenecks. Gold’s rally has made buying Brent with bullion cheaper. And risks to Brazil’s corn crop are driving up prices of the grain.

Here are five notable charts to consider in global commodity markets as the week gets underway.

Commodity Index

The Bloomberg Commodity Spot Index has rebounded to highs last seen in late May, propelled in part by gold’s rally to repeated records. Gold accounts for a 17% weighting in the index, which includes futures contracts for 24 commodities across agriculture, energy and metals markets. Recent rebounds for natural gas and copper through September have also helped lift the index, while war in the Middle East drove up crude futures into early October.

Gold-to-Oil Ratio

Gold’s rapid rise to repeated record highs this year has, by one measure, made oil the cheapest in more than three years — though escalating conflict in the Middle East is sapping some momentum. An ounce of gold bought more than 37 barrels of Brent crude on Sept. 26, the most since January 2021 — thanks to bullion hitting a fresh all-time high that day. Israeli air strikes on Hezbollah targets in Lebanon and Iran’s subsequent retaliatory missile attacks on the Jewish state in recent days have since driven up crude prices, cooling the gold-to-oil ratio. Still, levels remain close to the recent highs. Early in the pandemic, when oil was at 18-year lows, an ounce of gold could buy more than 87 barrels of oil.

Solar

The increase in European solar capacity is now so strong that even during winter the technology will satisfy a good chunk of the anticipated growth in electricity demand. New solar generation will be able to cover as much as 56% of the anticipated increase in power demand from October to March, according to consulting firm ICIS. The expansion of solar power, lead by Germany, is upending traditional energy economics in Europe, with its relatively lower cost to nuclear and fossil-fuel generation helping drive a surge in installations.

Aluminum

There are signs of a mounting squeeze in the aluminum market with contracts for October delivery on the London Metal Exchange trading at a higher premium over November. Traders caught in a lengthy queue to withdraw aluminum from the LME’s system are under pressure because they need to roll over hedging positions as they wait, while warehouse owner Istim Metals LLC has controversially raised a key administrative fee that makes it much more costly to re-register the lightweight metal if prices turn against them. The market has also been eyeing a large long position in October contracts held by Trafigura Group — the same trader that originally deposited the mountain of aluminum in Istim’s warehouses.

Grains

Corn prices in Brazil are hovering at highs last seen in early January thanks to a five-week rally. This season’s crop faces a major threat due to the much-delayed planting of soybeans. Predominantly dry weather across Brazil’s main producing regions has held up the soybean crop, which may have knock-on effects for corn. Corn is mostly cultivated right after the soybean harvest and before the end of the rainy season. Brazil is the world’s second-biggest supplier of the grain.

—With assistance from Mark Burton.