ROBIN HOLDINGS
March 5th, 2022
Only weeks after the first case of COVID-19, the health and sanitation situation was reconsidered as a pandemic, this has caused adverse effects to the national, regional and world economy, affecting most of the world’s industries.
Right now, businesses are watching the disruption in supply chains, the drop in demand for goods and services, and the decline in both business and leisure tourism. This context has decreased the confidence of the private and public sectors, increasing the skepticism of consumers and producers, perceiving an increase in aversion to financial risk and; consequently, a drop in share prices and a revaluation of raw materials and “commodities”. For all this cultural, social, economic and political environment, it is safe to say that the world is witnessing an unprecedented global crisis, a phenomenon that we are not used to.
Historically, crises have effects on the most important economic variables; for example, the prices of raw materials. In 2008, research suggested that commodity prices had fallen to their lowest level in this century and further documented positive changes in the interconnectedness – codependence or correlation – of global commodity prices. This implies that this hyperconnectivity and codependency could generate an even more intense spillover of the crisis.
The current economic scenario will have substantial consequences, among which are: high price volatility, repositioning of the value of “commodities” and financial uncertainty. Such that; For example, gold and silver, among other commodities, have shown that they have hedging and safe haven characteristics during periods of crisis. On the other hand, the price of oil and the stock markets may experience prolonged variations during this stage.
Different characteristics make “commodities” desirable in adverse economic contexts: 1) their intrinsic value does not depend on cash flows nor does it entail payment default risks; 2) they are universally accepted and rare; 3) they have a comparatively inelastic supply; 4) countercyclical demands, which cause them to increase or store value; and, 5) popularly marketable. For all these reasons, it is suggested that the commodity market seems to offer better opportunities and a safe haven during the crisis.
