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Energy and agriculture prices to remain elevated through 2022, gold price to see only modest gains - World Bank

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(Kitco News) - The start of 2022 has seen unprecedented moves in commodity markets across the board. And the World Bank expects prices to remain elevated through the year as Russia's war with Ukraine continues to disrupt.

Tuesday, the World Bank released its latest commodity price forecasts, with significantly higher price outlooks for energy and agricultural commodities.

"The price of Brent crude oil is projected to average $100 [per barrel] in 2022, a 42% increase from 2021 and its highest level since 2013. Non-energy prices are expected to rise by about 20% in 2022, with the largest increases in commodities where Russia or Ukraine are key exporters. Wheat prices, in particular, are forecast to increase by more than 40% this year, reaching an all-time high in nominal terms," the analysts said in the report.

Looking past this year, the World Bank said that the conflict in Eastern Europe would have the most significant impact on commodities.

"While prices generally are expected to peak in 2022, they are to remain much higher than previously forecast. The outlook for commodity markets depends heavily on the duration of the war in Ukraine and the severity of disruptions to commodity flows, with a key risk that commodity prices could be higher for longer," the analysts said.

Energy and food prices have been a solid focal point, causing inflation to rise to multi-decade highs worldwide. Looking at the energy market, the report noted that prices have risen four-fold from historically negative prices in April 2020 to March's highs, "the largest 23-month increase in energy prices since the 1973 oil price hike."

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Meanwhile, food prices have risen 84%. "These increases in prices are having major humanitarian and economic impacts and exacerbating food insecurity and inflation in many countries," the report said.

However, not all commodities are expected to shine bright this year. While precious metals have seen a strong start to the year, the World Bank sees only a 3% gain for the sector this year. For 2023, the report said that analysts see prices falling sharply.

"Gold prices are expected to increase modestly in 2022, before falling by 10% in 2023, weighed down by tighter monetary policy in the EU and the United States, with additional rate increases expected this year and next by the U.S. Federal Reserve to address inflationary pressures," the analysts said.

"In the longer term, gold prices could be affected by the Bank of Russia's policies, and should it engage in large gold sales, prices could drop materially," the report added.

Looking at the silver market, the World Bank sees lower silver prices through 2022 as industrial demand starts to weaken due to lower activity from China. However, the analysts also noted silver's potential with the global green energy transition.

"Risks to the forecast include a faster pace of the energy transition if countries choose to accelerate investment in zero-carbon sources of energy in place of fossil fuel imports," the report said.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.