Explainer: Why have commodities largely fluctuated in January?

In January 2024, financial markets were active and turbulent, with investors initially rejoicing as inflation fell and sectors such as semiconductors saw big gains. However, a hawkish central bank and geopolitical concerns tempered confidence, while dropping oil prices and stricter investment conditions put adverse pressure on investors.

Financial markets continued its December 2023 rise, owing to cooling inflation data and a lower US CPI report. Risk assets, such as the semiconductor sector, prospered, driving indices like the S&P and the NASDAQ up by more than 7% and 10%, respectively. The dollar index capitalized on the bullish price action, pushing its current price above $103.

Prices for gold and silver continue to fall, and certain precious metals continue to follow bearish patterns. Emerging markets and commodity prices, notably steel, are expecting healthy rallies as supply chain bottlenecks relax.

The U.S. steel market saw strong momentum beginning in December 2023, with prices climbing with bullish strength as Q4 ended. However, recent price softening may result in price modifications in the following months.

The US dollar index gained and surpassed $103, but developing currency markets are presently under bearish pressure due to risk aversion and geopolitical uncertainty. This price movement will put significant pressure on oil markets, potentially leading to demand destruction.

Emerging stock market sectors have sought steady weekly increases, with semiconductor chips and AI investor volume driving prices upward. Precious metals, such as gold and silver, sought adverse price movement when the currency rose. A rising stock market and US dollar index indicate inherent volatility risk in financial markets, which could affect commodity prices. Investors navigating this difficult market environment may face both positive disinflation and geopolitical headwinds, which could lead to additional uncertainty.