Commodities Soar. That's a Bad Sign for Crypto

 CRYPTO.News

Soaring commodity prices could plunge the world into a recession, reducing the outlook for riskier assets such as cryptocurrencies.

Other commodities such as oil, gas, wheat, and precious metals have experienced price increases due to supply-side shocks caused by the conflict between Russia and Ukraine.

Rising commodity prices could lead to a global recession, illustrating a gloomy long-term market outlook for risky assets like Bitcoin.

Investors appear to be starting to show interest in the precious metals gold and palladium, which are trading well beyond their historical highs.

Oil, gas, wheat and precious metals surged and added pressure to the high CPI inflation figures.

Historically, such increases in energy and oil prices have led to global recessions, which usually have a negative impact on riskier assets such as stocks and digital currencies.

The Russo-Ukrainian Conflict itself Makes Commodities Soar

Economies around the world are just starting to recover from the COVID pandemic.

The invasion of Ukraine and anticipated supply shortages triggered have sent commodity prices soaring to near and beyond record highs.

Oil prices have gained 2% to date to trade at a 14-year high of $122.50 a barrel.

Meanwhile, wholesale prices for natural gas in Europe, another commodity heavily affected by the Russian-Ukrainian invasion, have risen past an all-time high set in December to €207 (about $225) per megawatt/hour, a 1,000% increase since

March 2021. Prices surged as high as €267 (about $290) per megawatt/hour on the day after hitting an all-time high of €345 (about $375) on Monday, as Russia threatened the old continents that they would shut down.

Europe itself imports about 25% of its oil and 40% of its natural gas from Russia and is almost completely dependent on its country for the two energy commodities.

In addition, rising energy costs threaten to push prices and manufactured goods around the world even higher, slowing growth and potentially bringing the world into recession.

Well-known macroeconomists and investors such as Raoul Pal is one of many analysts who have warned that a recession is likely amid the Russia-Ukraine crisis.

Base metal nickel, one of Russia's biggest exports, also soared to more than $100,000 a tonne on Tuesday, causing the London Metal Exchange to halt trading for the rest of the day.

The nickel price on March 1 was about $26,000 per tonne.

Soaring food and energy commodity prices and a dismal long-term equity outlook appear to have prompted investors to seek shelter in the precious metal.

Gold has rallied 3.58% over the past five days and is currently trading at $2,014 an ounce, continuing to approach the record high of $2,074 recorded in August 2020. Palladium briefly hit a high of $3,440 on Monday amid supply disruption concerns and is currently trading around $3,000 mark.

While physical gold is near an all-time high, the market seems to have decided that the so-called crypto “digital gold”—Bitcoin—is more of a risk asset than a “safe haven.”

Similar to many traditional stocks, Bitcoin and the broader crypto market have taken a hit over the past few weeks.

The top cryptocurrency is currently trading around $38,700, down around 43.7% from its peak in November.

Disclosure: At the time of writing, the author of this work owns ETH and several cryptocs.