Commodities were highly sought after during lockdown. Will they soon be over-valued? After almost a year and a half of tumultuous financial markets,

analysts anticipate a progressive inflation towards the end of the year and the end of low rates once the coronavirus crisis lulls.

Metals and minerals, including iron and agricultural food products, such as wheat, corn and soybeans are all closely watched by analysts.

As French radio France Inter points out, the latest price hike was “partly eclipsed, at the time, by the financial crisis of 2008”. However, in 2007, China’s needs had already caused an impressive rise in prices, through to 2013.

A limited supply for a growing demand

If the fear of inflation grows, so does demand. With needs exploding from a growing world population and economic recovery from the coronavirus vaccine, all countries around the world, China first, are expressing strong demand for commodities.

“The demand is exploding, the supply does not follow,” noted Philippe Chalmin, professor at the University of Paris-Dauphine and director of the annual report Cyclops, the annual bible of commodities. “We weren’t expecting such a quick recovery,” he explains.

Gold will likely benefit from inflation

Good news for holders of gold bars is that the world’s most valuable commodity should become beneficial from the coronavirus crisis.

French magazine Capital reports that the start of the year has been difficult for gold, with “shifts in the macroeconomic outlook.” But the fear of inflation has restored confidence to savers.

As a matter of fact, the price of gold corrected by 10% for the first quarter of 2021, showing that it remains a safe bet during an uncertain global period.

Moreover, with the U.S. Federal Reserve confirming its rates will stay low for a long time, gold should experience a strong surge if inflation surprises the markets and escalates quickly.

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Will political unrest baffle markets?

But for some agricultural experts, another possible consequence, beyond a surge in agricultural prices, could well be a return to political conflicts, notably a new Arab Spring.

“Getting through the pandemic, as food prices rise, is proving to be a real challenge,” David-Michael Lincke, Head of Portfolio Management at Picard Angst told All News.

The FAO index was up 30% annually last month, he said. With a pandemic and a surge in long-term consumer goods, demand for soybeans, corn, and wheat has exploded globally.

“We are therefore returning to levels similar to those observed between 2010 and 2011, precursors to the Arab Spring protests.”, he adds, while mentioning that the price of rice has rather declined, which could potentially delay unrest in the Arab world.  

The above content is considered to be market commentary information and shall not be perceived as independent investment research or investment advice.