March 2022 came in like a lion before exiting unchanged. The war in Ukraine is forefront on world events everyone hoped would be solved. As the war rages on speculation about how much it could escalate increases. Although the S&P 500 ended the month in positive territory it was down (4.9%) for the quarter for the first time in seven quarters. Commodity prices such as oil and wheat surged however.
Commodity Price Surge and Inflation
The sanctions against Russia and the the disruption to supply chains as the result of the war in Ukraine has pushed already rising energy, food and metal prices even higher. Oil immediately moved above $100 USD a barrel and traded as high as $139 USD a barrel in early March. Gas prices have also surged. The price of diesel is rising exponentially due to supply concerns. Most trucks still operate on diesel making delivery of food and goods more expensive.
Wheat, coal, aluminum, potash and nickel prices have all moved much higher further disrupting supply chains which are still struggling to catch up from the pandemic. Many countries will experience a food crisis with the lack of wheat from Russia and the Ukraine which combined supply 25 % of the world’s wheat.
Europe is very dependent on oil and natural gas from Russia. Roughly 40% of the EU's natural gas comes from Russia. The Russian Ruble took a nosedive in early March but has rallied to near its pre-invasion. Hope that the war would soon be resolved and Putin's statements that more Russian exports must be paid in Rubles have both helped the Ruble. Europe is on alert for further disruptions to gas imports as supply is already limited and Putin seeks retaliation over Western sanctions.
LME Nickel and other critical metals
The tight nickel supply and surging prices will inevitably become an issue for the EV (electric vehicle) industry as the supply & demand balance for nickel continues to stay in a deficit. Nornickel, a Russian mining company, produces 20% of the world's Class 1 nickel supply which is deliverable on the LME - also suitable for producing EV batteries. While the recent Russian-Ukrainian war has not impacted Nornickel's nickel production, the price of nickel spiked on March 8, the LME halted trading at 08:15 GMT, shortly after the 3-month price rose as high as US$101,365 per tonne as major Chinese participants and others struggled to cover short positions. LME then made the controversial decision to cancel all nickel trades, effective March 8 at midnight UK time. The LME nickel price remains above US$33,000.
President Biden has invoked the Defense Production Act to boost raw materials for EV battery production. This decision adds lithium, nickel, cobalt, graphite, and manganese to the list of items on the 1950 defense production Act.
Lithium, another critical metal, has also experienced a major price surge fueled by the EV industry. The surge in commodity prices has economies worldwide in disorder as countries look to develop their own supply chains, which have further broken down because of sanctions western nations have imposed on Russia.
The Gold Price
Recently, our head of research, Chantelle Schieven participated in an interview with Kitco News which we are pleased to share. Chantelle works with Dr. Martin Mureenbeld on the weekly Gold Monitor. Gold has found a new range and the precious metal is building a solid base between US$1,900-2,000 an ounce. During the Kitco News interview, Chantelle explains that even if the war in Eastern Europe is resolved, that the gold price could settle at a higher trendline. The conflict has become a critical pivot point that is changing the global geopolitical landscape and financial markets. While keeping the gold price outlook for 2023 in mind, Chantelle notes “once it becomes clear that the Fed is stuck at a lower neutral rate, gold will again take off with prices pushing above $2,100” and continued to add that in the long-term we see gold prices surpassing inflation-adjusted all-time highs around $3,000 an ounce.
In closing we would like say that governments can print money but not Oil to Heat or Wheat to Eat!
Bonus Tip
I think Silver is being over-looked and will make a strong move to the upside. Silver ETFS are an option if looking for a basket of stocks!
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