Q4 Commodities outlook: shaped by policies, supply, geopolitics, and weather

Gold, ever the dependable safe haven, is glinting brighter as Q4 progresses.

While much of the market fixates on the short-term noise of interest rate hikes and inflation, gold remains the steady hand in times of economic uncertainty. Prices peaked above $2,600 per ounce, and though some consolidation is expected, the longer-term outlook remains bullish.

A primary catalyst for gold in Q4 is central bank policy. As the Federal Reserve grapples with inflation and growth concerns, further rate cuts in 2024 seem increasingly likely. Historically, gold thrives in these environments, where economic wobbles boost its appeal as a hedge against currency volatility and geopolitical risk. Additionally, global central banks are stockpiling gold, a trend likely to continue into 2025 as concerns around currency stability grow.

Seasonality can typically provide insight into market behavior, but gold has not adhered strictly to either 5- or 10-year patterns in recent years. Instead, its performance has more closely aligned with long-term economic trends. While the 5-year seasonality suggests a bottom is near, the 10-year seasonality points to a bottom forming 4-6 weeks from now, potentially coinciding with the U.S. presidential election—historically a period of heightened volatility.

For investors seeking safety in turbulent times, gold remains the stalwart performer. As Q4 2024 rolls into 2025, expect gold to maintain its role as a long-term hedge, particularly as we enter an election year in the U.S., where volatility could provide additional support. Given that the Federal Reserve’s actions in 2024 are likely to involve additional rate cuts due to inflationary pressures and cooling job market, gold could see further upward movement.

Oil’s Path Forward: Rising Demand, Fragile Supply, and Geopolitical Uncertainty

The oil market in Q4 2024 is a complex web of tightening supply, growing demand, and geopolitical intrigue. WTI crude has bounced back from earlier lows, now trading near $70 per barrel, but the story doesn't stop there. OPEC+ production cuts have kept supply constrained, while unexpected disruptions in Libya have further reduced output, tightening the market’s balance.

The Energy Information Administration (EIA) forecasts U.S. oil production to reach 13.3 million barrels per day (bpd) by year’s end, but this increase may struggle to keep up with global demand, which is expected to hit 104.6 million bpd in 2025. Adding to the complexity is the return of backwardation in the futures market, where near-term oil prices are higher than long-term ones. This signals immediate supply concerns and suggests we may see upward pressure on oil prices heading into 2025.

However, oil’s path is far from certain. Geopolitical risks, ranging from OPEC+ policy shifts to potential conflict in oil-rich regions, could easily disrupt supply chains further. For investors, oil in Q4 is a balancing act between rising demand and fragile supply—a game of chess where every move could drastically change the board.

Q4 2024 Commodities: Shaped by Supply, Demand ... and Weather

As the final quarter of 2024 unfolds, the commodities market is stepping into a whirlwind of uncertainty and opportunity. Cotton, coffee, cocoa—all at the mercy of shifting weather patterns, geopolitical dynamics, and supply-demand fluctuations—are ready to make their move. For traders and investors, it’s going to be a ride where preparation might meet unpredictability.

Cotton: Steady Amidst Weather Challenges

Cotton's outlook for Q4 2024 are shaped by a combination of rising prices and growing concerns over weather disruptions. November cotton contracts saw a sharp increase of almost 4%, climbing to $73 per bale on ICE. This spike led to a temporary suspension of trading due to increased volatility fueled by fears of another disruptive hurricane season in the U.S. Cotton-producing states like Mississippi and Louisiana, already under strain from Hurricane Francine, and facing further threats from incoming storms like Tropical Storm Gordon. The U.S. Department of Agriculture's downward revision of crop forecasts only added fuel to the fire, spiking concerns of supply shortages just as global demand sits comfortably at 25.9 million tons.

What makes this story gripping is the tightrope cotton is walking between robust demand and fragile supply. The volatile weather means cotton could see dramatic price swings as Q4 progresses. If the hurricane season intensifies, and the harvest in key U.S. states takes a hit, we could see prices rise sharply. However, even without major disruptions, the global supply-demand balance is delicate enough to keep cotton on investors’ radar.

Coffee: A Market Shift Brewing

Q4 2024 is setting up to be an intense period for coffee, with both Robusta and Arabica prices soaring to their highest levels since 2008 and 2011, respectively. Robusta's impressive 90% increase this year, coupled with a 40% rise in Arabica, has been driven by severe weather disruptions in Brazil and Vietnam, the top producers of these varieties.

Brazil’s drought, one of the worst in years, threatens to reduce Arabica output significantly, while Typhoon Yagi has battered Vietnam’s Robusta-producing regions just ahead of the harvest. The La Niña weather pattern is adding further complexity, bringing excessive rains to Vietnam and more drought to Brazil. Despite some stockpile recovery since mid-year, inventories remain significantly lower than historical averages, tightening the supply chain.

As Q4 progresses, coffee could be in for more upward pressure. If Brazil’s and Vietnam’s struggles continue, the projected surplus for the 2024/2025 season could evaporate, pushing prices even higher. For traders, this commodity could be the pick-me-up they didn’t see coming.

Cocoa: Cooling Off, but a Spike May Follow

While cotton and coffee have faced more volatility, cocoa has quietly declined. Prices have slipped by 8% since September, a correction after previous highs. However, as the harvest season kicks off in October, this soft decline may be short-lived.

Historically, cocoa prices weaken around harvest time, and 2024 seems to be following the script. But even with this expected dip, traders shouldn’t write off a surprise twist in the cocoa market. If harvest outputs come in lower than expected, especially given the pressure of earlier weather-related disruptions, in that case and if we saw a reversal, testing prices back near the $5,600 per ton range might be very probable.