If January 2020 was any indication, then the rest of the calendar year is likely to be one for the books. The evolving U.S.-China trade war, 2020 U.S. general election, and traditional fundamentals all stand ready to influence asset pricing. If you’re seeking opportunity, there may never be a better time to trade futures.
Let’s take a look at two commodity contracts that will be on our radar until New Year’s Day 2021.
Addressing Uncertainty with Gold
Target Contract: December 2020 Gold Futures
Exchange: CME Globex
A time-tested safe haven, gold is one of the commodity contracts that will play a key role in countess investors’ 2020 portfolios. Although bullion has stagnated since the financial crisis of 2008, values are on the uptick. In fact, as of January 2020, the spot gold market has rallied above $1,550 per ounce from less than $1,200 in August 2018.
Though impressive, the Aug. 2018-Jan. 2020 bull run in gold is a bit counterintuitive. Historically, when equities markets rally, bullion dips. Recently, this hasn’t been the case. Even though the “Trump Rally” in U.S. equities has driven stocks to all-time highs during the same 18-month period, gold has also posted solid gains.
So the question persists: If investors are bidding gold during robust equities market performance, what happens when the unexpected strikes? Here are two factors poised to drive participation in the bullion markets in 2020:
- Coronavirus outbreak: The early 2020 outbreak of the Chinese coronavirus was a sobering event for the financial markets. Should the situation escalate into a full-blown epidemic, global economic growth is sure to be greatly impacted.
- 2020 general election: A regime change in the United States will inject mass political uncertainty into the markets. In anticipation of the possibility that such issues as corporate tax cuts and foreign trade could be revisited, institutional investors are likely to hedge against broader systemic risks via bullion.
Viral outbreaks historically lead to a spike in safe-haven values, as does the exit of a pro-business administration from the White House. Both events are possible in 2020 and may potentially hurt risk-on sentiment. It is anyone’s guess how each situation will eventually pan out, but they are both capable of contributing to gold hitting the $2,000 per ounce valuation.
Energy Market Volatility
Target Contract: January 2021 West Texas Intermediate (WTI) Crude Oil
Exchange: NYMEX, CME Globex
WTI crude oil’s volatility and propensity to trend has earned it a reputation for being the “wild west” of futures trading. As far as commodity contracts go, WTI is among the most popular products in the world.
Overall, 2019 was a chaotic year in the global oil markets. Prices regularly bucked seasonal trends; trading relatively depressed during the summer and rallied over the fall and early winter. January of 2020 brought a return to order for crude oil, with March 2020 WTI futures falling by more than 10 percent.
As the year unfolds, there will be several underpinnings driving WTI valuations:
- U.S.-China trade: A theme throughout 2018 and 2019, the U.S.-China trade war has impacted commerce on a global scale. However, January of 2020 brought progress in the form of the Phase One U.S.-China trade agreement. If a comprehensive deal is crafted, global economic growth projections will tick north―and WTI prices will likely follow suit.
- OPEC production cuts: 2019 was the year of the production cut. OPEC slashed output and reinforced commitments to extend cuts well into 2020. Though OPEC’s policies had a debatable effect on WTI pricing for 2019, they may play a key role in 2020’s oil trade.
For global oil, market share is all about demand―Chinese demand. Due to the rise of North American fracking over the past decade, the supply side of the equation has grown more robust. Without steady global economic growth projections driving increased demand, oil prices could remain in their two-year bear market.
Maximize Your 2020 Returns with Commodity Contracts
Staying on top of the commodity contracts is a full-time job. So why not look to the industry pros for guidance as the key events of 2020 unfold?
A great way to remain in the loop is referencing Daniels Trading’s Trading Advisories online portal. Featuring timely market analysis and actionable trade ideas, Trading Advisories is a valuable asset for anyone interested in the commodity markets.