Commodities Are Soaring. That’s a Bad Sign for Crypto


Key Takeaways

Commodities like oil, gas, wheat, and precious metals have soared in price due to supply-side shocks caused by the Russia-Ukraine conflict.
Soaring commodity prices could lead to a global recession, painting a bleak long-term market outlook for risk-on assets like Bitcoin.
Investors appear to be showing interest in precious metals like gold and palladium, which are trading near or beyond their historic highs.

Share this article

Oil, gas, wheat, and precious metals are soaring and adding inflationary pressure to already-high CPI inflation numbers. Historically, such surges in energy and oil prices have led to global recessions, which have typically had a negative impact on risk-on assets such as stocks and cryptocurrencies.

Russia-Ukraine Conflict Sends Commodities Soaring

Global economies had barely begun recovering from the COVID pandemic that resulted in over two years of intermittent lockdowns, severe supply chain issues, unprecedented money printing, and record-high inflation rates before facing another global crisis triggered by Russia’s invasion of Ukraine. 

Now, the war in Ukraine and the anticipation of supply-side shortages it has triggered has sent commodity prices soaring near or beyond record highs. The oil price rose by 2% today and is currently trading at a 14-year high of $122.50 per barrel.

Meanwhile, the wholesale natural gas price in Europe, another commodity heavily affected by the Russia-Ukraine conflict, has soared way past the all-time highs it made in December to €207 (around $225) per megawatt-hour, up 1,000% since March 2021. The price jumped as high as €267 (around $290) per megawatt-hour on the day after temporarily hitting an all-time high of €345 (around $375) Monday as Russia threatened the old continent that it would turn off the valve.

Natural Gas/EUR chart (Source: Trading Economics)

Europe imports roughly 25% of its oil and 40% of its natural gas from Russia and is almost entirely at the mercy of its neighbor when it comes to the two energy commodities. Moreover, soaring energy costs threaten to push global prices of production goods even higher, slowing growth and potentially tipping the world into a recession. The acclaimed macroeconomics expert and investor Raoul Pal is one of many analysts to have warned that a recession is likely amid the Russia-Ukraine crisis, remarking in a Mar. 3 tweet that “the odds are rising every day.”

I’m struggling to see how we are going to avoid a global recession. The odds are rising every day. Not a certainty yet but close.

— Raoul Pal (@RaoulGMI) March 3, 2022

A recession is an economic contraction or a general decline in economic activity. Stocks and other risk-on assets tend to fare badly in recessions. To that point, equities have already seen significant corrections from their all-time highs. For example, the FTSE 100 index tracking the 100 largest companies listed on the London Stock Exchange has dipped 5% over the last five days. The Dow Jones and S&P500 indices have dipped 2.37% and 2.95% on the day. 

To make matters worse, Russia and Ukraine are among the largest wheat producers in the world, accounting for almost a third of the world’s wheat exports. However, since the Russian assault on its smaller neighbor, wheat production and exports have come to a virtual standstill, leading prices to soar over 31% in a week and well beyond their previous all-time highs to €422 (around $459) per tonne. Russia is also one of the largest fertilizer exporters globally, leading to a significant surge in global fertilizer prices. As fertilizer is essential for farming food, the surging prices directly impact food costs. 

Wheat/EUR chart (Source: Business Insider)

The price of base metal nickel, another of Russia’s largest exports, has also skyrocketed to over $100,000 per tonne Tuesday, leading the London Metal Exchange to halt trading for the remainder of the day. The nickel price on Mar. 1 was about $26,000 per tonne.

Soaring food and energy commodity prices and the bleak long-term outlook for equities appear to have prompted investors to seek refuge in precious metals. Gold has rallied 3.58% over the last five days and is currently trading at $2,014 per ounce, steadily nearing its record high of $2,074 recorded in August 2020. Palladium briefly hit a high of $3,440 on Monday amid fears of supply disruptions and is currently trading around the $3,000 mark.

While physical gold is nearing all-time highs, the market seems to have decided that crypto’s so-called “digital gold”—Bitcoin—is more of a risk-on asset than a “safe haven.” Similar to many traditional stocks, Bitcoin and the broader crypto market has taken a beating over the last few weeks. The top crypto is currently trading at around $38,700, around 43.7% down from its November peak. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies.

Share this article

The information on or accessed through this website is obtained from independent sources we believe to be accurate and reliable, but Decentral Media, Inc. makes no representation or warranty as to the timeliness, completeness, or accuracy of any information on or accessed through this website. Decentral Media, Inc. is not an investment advisor. We do not give personalized investment advice or other financial advice. The information on this website is subject to change without notice. Some or all of the information on this website may become outdated, or it may be or become incomplete or inaccurate. We may, but are not obligated to, update any outdated, incomplete, or inaccurate information.

You should never make an investment decision on an ICO, IEO, or other investment based on the information on this website, and you should never interpret or otherwise rely on any of the information on this website as investment advice. We strongly recommend that you consult a licensed investment advisor or other qualified financial professional if you are seeking investment advice on an ICO, IEO, or other investment. We do not accept compensation in any form for analyzing or reporting on any ICO, IEO, cryptocurrency, currency, tokenized sales, securities, or commodities.

See full terms and conditions.

NFT Express: Your on-ramp to the world of NFTs

At Tatum, we’ve already made it super easy to create your own NFTs on multiple blockchains without having to learn Solidity or create your own smart contracts. Anyone can deploy…

Bitcoin Is at Risk as Support Weakens

Bitcoin has reversed to a critical support level that will determine where it is heading next. Although this demand zone appears to be weakening over time, there is one reason…

Ethereum Hints at Recovery From Market Slump

The Ethereum network appears to be gaining the activity it needs for a price recovery. Still, Ethereum is yet to see a steady increase in new addresses to support the…

NFTs Soared in 2021. Now They’re Sinking

The NFT market appears to be suffering from the bearish sentiment prevailing in the broader crypto and traditional markets. Trading volumes on the largest NFT marketplace OpenSea are trending down,…



Source

Recommended For You

About the Author:

Leave a Reply

Your email address will not be published.