An excellent time for commodities: trading through the COVID-19 crisis
HYCM's Chief Currency Analyst Giles Coghlan explains why it could be a good time to invest in gold, copper and nickel
HYCM was one of the first retail forex brokerages to be regulated in the UK. With over 40 years’ experience and representation in the UK, Hong Kong, Cyprus and Dubai, the business has seen a lot of market turmoil; its Chief Currency Analyst, Giles Coghlan, outlines how traders have been responding to this year’s record high volatility, and explains why commodities are a good pick as the world looks forward to a vaccine.
World Finance: Giles, how have HYCM and your traders responded to this year’s crisis?
Giles Coghlan: Well, HYCM already has experience in successfully withstanding some of the biggest market crashes and major volatility over the years, so, our clients can be sure that they’re trading with one of the most solid and secure brokers in the world.
In fact, in terms of traders generally, they do favour volatility; so you do tend to see an uptick in trading activity whenever you get global events like these causing large swings in asset prices. And many brokers have been reporting increased volumes at this time. So generally speaking, it has been quite good for business.
However, the record high volatility also provides challenges. It is a very difficult investment environment, and the kind of uncertainty in markets at the moment favours a much shorter-term horizon, as longer-term investments – particularly early in the year – were crowded with considerable uncertainty.
For traders it actually has been a really good time to take advantage of some of our free online webinars and workshops, that are located on the HYCM website, and hosted by myself every week; in order to really enrich and deepen their trading skills and knowledge.
World Finance: So with your analyst’s hat on, what assets do you think will perform well in today’s environment?
Giles Coghlan: Well this is one topic that I’ve been speaking a lot with HYCM clients about. And this could be a really excellent time for commodities, as global growth starts to get going again on global vaccine hopes.
Now this could also be a very, very good time for gold. The Federal Reserve is set to keep interest rates at low levels right through 2023; the US is on the verge at the moment of releasing a large stimulus package, and quantitative easing levels are at record levels. So one of the key areas that we’ll be looking at is how quickly the Federal Reserve looks at raising interest rates. And as long as they keep interest rates low, you would expect that to be very good for gold, which has grown and gained in value in all of the last major financial crises that we’ve had. So gold long still looks good right now – but we need to keep a careful eye on what the Federal Reserve does.
Copper also looks very good from a medium-to-long term. Electric vehicles are growing in popularity, and they’re thought to account for about 9.4 percent of copper demand by 2030. And the current level is 2.4 percent. So we are over the medium term expecting a good boost in copper prices. So you would expect dips in copper to find buyers in the medium term.
Another interesting commodity is nickel. According to Morgan Stanley, electric car sales are seen to boost nickel the most of all the commodities used in producing an electric vehicle. So they predict that over the next five to 10 years there’s going to be a heavy investment in nickel mining, and a greater demand for nickel itself. So over the next five to 10 years, the commodity nickel could be a great investment.
World Finance: And how about currency trades?
Giles Coghlan: Well I think the currencies that you’d expect to benefit from this environment are currencies that are pro-cyclical in growth. So, typically the Australian dollar and the New Zealand dollar would benefit from a boost in commodity prices. If the US dollar weakens, that would further benefit the Antipodean currencies like the Australian dollar and the New Zealand dollar. And perhaps an AUD/JPY long, or a NZD/JPY long, could be a great trade over the medium to longer term, as we come out of this medical crisis.
Learn more, and watch Giles’ free webinars, at HYCM.com