Witnessing an attractive end to the last decade, investors are bracing for the super cycle of new commodities in 2021. With reflation trades and global economic recovery playing out strong, traders are caught off guard by the pandemic crisis. Along the same lines, thriving recovery throughout the commodities industry arrived as a surprise, hence bringing them for kick-starting a super cycle.
2021 is expected to witness an extension to the commodities’ structural shift, backed by the two principal narratives: Global reflation and quick post-pandemic turnarounds of China’s economy. By reflation theory, it indicates an expansion within the level of overall economic output by monetary and fiscal support provided by governments.
Reflation and 2021 Trends
The definition of reflation can be referred to as a quick turnover to bring the prices back to the long-term trend. With 2021 advancing, we are going to witness the economy getting back to normal with every passing day. With more and more Americans getting vaccinated, along with the economic restrictions that have hindered the growth proceed to get lifted. This is going to only accelerate while the new covid cases keep on declining.
Meanwhile, there are trillions of dollars in demand within the system because of jobless benefits, fed stimulus, and a wide assortment of additional projects. Therefore, an expectation of deflated economy to the stages of reflation can become true.
The Comeback Of Commodities
2020 happened to be the year favoring technology stocks, which happen to be relatively insulated from the shifts in the economic cycle. Selling everything happened to be the key underlying theme at the beginning of 2020, while the covid-19 pandemic hit the world. It has knocked down high-yield assets like stocks, commodities, and more. With lockdowns and restrictive measures imposed globally, there was a shift in the demand and supply, ensuring worldwide economic recession.
While reflation does not happen to be necessarily bad for technology, the reflation trade happens to be a lot better when it comes to commodities, financials, basic industries, and economically sensitive value stocks. Many of the best stocks to invest in, in 2021, incorporate organizations that would profit from the scenario of reflation.
Providing the reflation scenario also indicates increasing bond yields, which already have been one of the most defining trends in 2021. However, this still happens to be part of normalization. They are simply going back to the pre-pandemic levels. Therefore, reflation now will be funds and stocks that appear to work well when the rate happens to be trending higher. With the stars aiming for higher commodity prices in 2021, let us take a glance at which commodities are likely to shine the recovery momentum.
Copper Price: Hot As Hell
The Stellar performance of copper in 2020 makes it the best industrial metal in 2021. With red metal topping 2020, investors are looking forward to breaking the threshold of last year in 2021. The customer demand induced by reflation is considered as one of the main reasons behind the expected Bull run of copper, hence keeping the global manufacturing industry humming. As far as the optimism concerning the economic recovery of the US dollar is pressurized, it could underpin the prices of copper.
The most important constituent remains the continued development in Chinese demand concerning this nonferrous metal. The net imports of China concerning refined copper increased by 45% in the last year. Moreover, wind power harnessing projects backed by copper intensive renewable electricity happens to be an unprecedented move, hence bolstering the copper demand.
Lately, the president of The United States happened to pledge for a Clean Energy Revolution, hence calling for installing 500000 electric vehicle charging stations by 2030, thereby providing 400 billion dollars for research and development in the domain of clean technology, hence making this effort make the most of the usage of copper in 2021.
Prices Of Silver Will Outplay Gold
Being quite hard to believe, silver prices are likely to surpass the rally in 2021 as compared to Gold as the demand for this Commodity increases. Having broad applications within the industrial sector, silver has also witnessed the next best hedge against inflation. Thus, if a possible vaccine and a stimulus-driven worldwide economic recovery precipitate down, we can witness a robust revival in the demand for Silver when it comes to industrial applications.
As far as the supply side situation is concerned, stringent covid guidelines in significant silver producing Nations, including Peru, Mexico, and China, have led to disruption in the production of this metal. The restrictions of the pandemic further triggered supply constraints concerning gold, but the influence on the prices of silver happens to be more pronounced because the supply of mined silver happens to be much more concentrated within the essential silver-producing Nations.
With that being stated, the prices of gold are expected to stay supported by the continual movement of massive monetary and fiscal stimulus worldwide along with higher inflation prospects. But, the rise might not match the witnessed in 2020, as governments might hold back. Therefore, silver comes with sufficient scope to challenge its all-time highs in 2011.
The present market scenario is not precisely perfect for banks. Banks are not earning much as far as their excess reserves are concerned. But, banks remain in surprisingly great shape after an unexpectedly unpredictable year.
For more than 10 years of the de-risking after the last 2008 recession, significant banks rose up with the financial strength for making it through the covid-19 pandemic with no notable blowups.
Having said that, banks are entering the reflation trade in a pretty good position than they did back in 2009. They are in a strong position and are better capitalized for making loans to the organizations seeking expansion in the post covid world. It might take a short while, but bank stocks happen to be showing huge momentum, hence aiming to accelerate in the scenario of reflation.
With the pandemic disrupting worldwide economies, even the foreign exchange trading market has undergone severe transformations. Creating volatility associated with the management of covid-19, policymakers currently happen to be discussing inflation and growth for driving down public debt burdens.
The UK pound happens to be under pressure because of the UK’s struggle to proceed with the new variant of coronavirus. This might put extra pressure on the economy of the nation. Similar to the UK, Canada is suffering from the second wave of the covid-19 pandemic, given the situation happened to stabilize in December, and presently the outlook concerning the Canadian dollar appears to be favorable.
The covid-19 pandemic has also offered notable support for the Euro as traders remained focused on issues of the United States dollar. With the Euro moving higher, Forex traders can expect new highs in EUR/USD in 2021. If you look forward to harnessing the present situation at its most, Forex brokers have got your back, and without further worry, you need to get started with trading prospects in the forex market.
Industrial metals like copper and silver are expected to outperform gold prices, banks are likely to surpass their own records, all with a new structural commodity bull market in 2021, given the Chinese economic recovery, shift to decarbonization, and reflation trades.