Chris Weston, head of research at Pepperstone, said calls for a recession are causing a severe downturn in the commodities sector, with short positions rising rapidly in copper, oil, gold, and silver.
The European Union is most at risk of a recession as the European Central Bank is forced to tighten measures to bring inflation under control amid rather bleak growth prospects. However, the recession is more of a global issue, Weston warned in a note on Wednesday.
In a world of rising interest rates and central banks seeking to put the inflationary genie back in the bottle, there is clear evidence of demand destruction—commodities were the default reflection of this theme.
So far, the main takeaway from this has been the rise of the US dollar index to a 20-year high as it dominates other currencies, including the euro, pound, and commodity currencies such as the Austrian dollar.
Calls for a recession, coupled with a strong US dollar, signify negative behavior in commodity prices.
Short positions are something to look out for going forward in commodities. Weston added that for gold, this could mean a fall. As of this writing, August Comex gold futures have already fallen to $1,736.90, down 1.53% on the day.
If the strength of the dollar remains, then it is worth paying attention to the positions on gold in Australian dollars or euros (XAUAUD or XAUEUR).
Crude oil prices are also falling. According to the forecasts of the American bank, Brent crude oil during the recession may drop to $65 per barrel.
From a risk perspective, it would be better if it was driven by additional supply rather than falling demand—the problem with supply is that OPEC is struggling to meet current quotas, so additional supply seems like a daunting task.
