The cost of a Fourth of July spread for 10 people increased to $71.22 this year, up 5% from last year and 30% from five years ago, according to the American Farm Bureau Federation. This rise in prices has led to a discussion on the potential benefits of investing in commodities as an inflation hedge, with a 1 percentage point increase in U.S. inflation historically resulting in a real return gain of 7 percentage points for commodities.
Silver, oil, and gold were the top performing commodities in the first half of 2024, leading to increased interest from investors. Silver, often referred to as the “poor man’s gold,” has seen a significant increase of close to 22.5% due to a global supply deficit and rising demand, particularly in the solar energy sector. The market deficit in silver is expected to widen by 17% this year, leading to potential price increases as demand outstrips supply.
Oil, the second top performer, has gained 13.8% in the first half of 2024 despite the push for electrification. The International Energy Agency predicts that global oil demand will level off near 106 million barrels per day by the end of the decade, coinciding with a surge in global oil production. This potential oversupply situation could put downward pressure on oil prices, although some forecasts, such as Goldman Sachs Research, anticipate continued growth in oil demand until 2034.
Gold has risen 12.8% year-to-date and outperformed many major asset classes in 2024. Despite challenging conditions like high interest rates and a strong U.S. dollar, gold has remained resilient due to factors such as central bank buying, strong Asian investment flows, and geopolitical uncertainties. The World Gold Council estimates that central bank demand alone contributed significantly to gold’s performance in 2023 and 2024. Goldman Sachs has set a bullish target of $2,700 per troy ounce for gold by year-end, citing solid demand from emerging market central banks and Asian households as key drivers.
Investors see potential in commodities as a hedge against both inflation and geopolitical risks, with silver’s industrial demand in the green energy sector presenting a compelling growth story. Oil continues to be a critical resource, especially for emerging economies, despite the global push towards renewables. Gold, known as the eternal safe haven, is expected to continue proving its worth in uncertain times, offering a buffer against stock market volatility and potential upside if concerns about the U.S. debt load or Federal Reserve policy changes arise. As we move into the second half of 2024, the commodities market continues to offer intriguing opportunities for investors.
