2018: A Commodities Outlook

Part 1 - Tailwinds from 2017

2017 was a successful year for commodity investors and with the positive global growth prospects forecasted, 2018 has teed itself up for yet another year of commodity price gains.

The World Bank has lifted its economic growth forecast to 3.1%. The IMF expects global GDP to rise 3.6% this year.

A key indicator of global commodity performance is the US dollar (USD) - a strong USD tends to be bad news for commodity prices. The reason for this is that there is a strong inverse relationship between the USD and commodity prices and although the drivers behind this relationship are complex and the relationship is not necessarily one of cause-and-effect, the historical consistency of it indicates that it warrants a close watch.

Following Trump’s successful presidential candidacy campaign in which he promised to prioritise tax cuts, increase infrastructure spending and make “America great again”, it was anticipated by many that the USD would have a strong year and as a result global commodity prices would take a hit.

In reality, the opposite was the case – the US currency was overvalued and numerous policy bumps restricted any momentum in the greenback.

As a result, 2017 was a year of a weakening USD and strengthening commodity prices. It’s a theme that looks set to continue in 2018.

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