Commodity Prices Plunge 8% Amid Trade Tensions, Recession Fears

The global sell-off in commodities has sent a stark warning signal about the state of the world economy. Since April 2, when the U.S. President announced a series of "reciprocal" tariffs, the prices of commodities tracked by the S&P GSCI index, which covers energy, metals, and agriculture, have fallen by more than 8%. This sharp decline in commodity prices is seen as a "circuit breaker" indicating an impending global economic recession, according to a macro and geopolitical expert.

The downturn in commodity prices is exacerbated by the escalating trade tensions between the world's two largest economies. The S&P GSCI index shows that since April 2, the prices of commodities have continued to decline despite a brief rebound following the reversal of some tariff policies. Energy prices have been the hardest hit, falling by approximately 12%, followed by industrial metals with a 9% decline, and soft commodities dropping by about 5.2%.

The broader negative sentiment in the market aligns with the decision by OPEC+ to accelerate production increases. Despite a slight rebound in oil prices following the tariff policy reversal, prices remain at multi-year lows. Brent crude oil, the global benchmark, is trading at around $64.78 per barrel, while West Texas Intermediate (WTI) is at $61.77 per barrel. Goldman Sachs has lowered its year-end price forecasts for both Brent and WTI to $62 and $58 per barrel, respectively.

The increasing concerns about a global economic recession have led to expectations of further declines in commodity prices. A major financial institution predicts that the U.S. GDP will contract by 0.3% this year after a period of strong growth. The overall decline in oil prices since April 2 indicates that the market is factoring in a higher probability of an economic recession, according to a commodities strategist.

The heightened trade tensions and economic recession fears are also impacting industrial metals. Copper, widely used in various industries, is seen as a leading indicator of economic health. Despite a slight increase in copper futures on April 2, the price has fallen by over 16% since then. The strategist suggests that the tariffs could slow U.S. economic growth, reducing demand for copper and other industrial metals.

Goldman Sachs has also lowered its copper price forecast due to an oversupply and expectations of a U.S. economic slowdown. The investment bank predicts that if the U.S. enters a recession, copper prices could fall to levels seen during the first term trade wars and the COVID-19 pandemic, at $6,500 and $5,900 per metric ton, respectively. The ongoing trade tensions and economic uncertainties are likely to continue affecting commodity prices, reflecting the broader economic concerns and market sentiment.