A lot of commodities have done well in September, but silver and natural gas stand out for their own unique reasons. Their price rise doesn’t look like it will stop any time soon.
“The commodities market in September felt like a long-distance race where the runners finally hit high gear after months of slowing down,” said Adam Koos, head of Libertas Wealth Management Group.
Natural gas has been the “metaphorical sprinter,” he told BourseWatch. “It broke away from the pack, getting stronger as cooler weather arrived, and there are signs that demand from [artificial intelligence] data centers might be adding to its fuel tank.”
“It’s too early to say for sure if AI is a factor, but it’s like seeing a runner with new shoes: you get the feeling that it might help them do better in the race,” he said.
Silver, on the other hand, has been the “steady Olympic gold medalist,” according to Koos. “It has been pacing itself well and finding a second wind as inflation worries eased and industrial demand picked up.”
The Bloomberg Commodity Index BCOM 0.34%, which is made up of 24 exchange-traded real commodities contracts, was 4.3% higher month-to-date on Friday. It was on track to make a monthly gain for the first time since May.
Peak Trading Research made a chart that showed which commodities led the over-rise in the commodities market.
Natural gas, sugar, coffee, and metal all have the most value gains.
The number of gas rigs and AI data centers
Analysts say that natural gas prices have gone up a lot in September because sources have shrunk and demand has grown. Some of this higher demand is due to the fact that AI data centers need more power.
The price of the good NG00 0.65% NGX24 0.65% had gone up 29.4% so far this month. On Friday, it went up 5.4% to settle at $2.90 per million British thermal units.
“The Baker Hughes rig count tells you everything you need to know about the rise in natural gas prices,” said Manish Raj, managing director at Velandera Energy Partners.
He said that there are about as few digging rigs as there have been since 2021. Baker Hughes BKR 4.06% said that there were 96 operating gas drilling rigs in the U.S. for the week ending September 20. However, that number went up to 99 in the following week.
Raj told MarketWatch that the market for natural gas is “holding strong,” with much growth coming from power producers this year. Because of this, the U.S. gas storage that had been “bloated” since the spring is quickly getting back to its normal level from the last five years.
“Utilities are in a hurry to buy natural gas because they don’t want to run out before winter,” he said. Natural gas is often used as a heating fuel in the winter because more people need to heat their homes.
The natural gas market has also been affected by the rise of AI, which has led to more power needs. This is a small effect so far, but it is there.
According to a study from the International Energy Agency, the world’s demand for electricity rose by 2.2% in 2023. It will rise even faster over the next three years, rising by an average of 3.4% each year until 2026. It said that by 2026, the amount of electricity used by data centers, AI, and the cryptocurrency business could double.
Because AI data centers need more power, Raj said, “natural gas is a natural beneficiary of this trend.” “Building nuclear and coal-fired power plants takes a long time, so natural gas is the quick and easy way to meet AI demand.”
“Data centers consume only 1-2% of power and 3-4% of electricity in the U.S.,” he said, despite getting a lot of attention in the news.
“Because the base is so small, a lot of new data centers won’t change the story,” Raj said. “However, it does break up the otherwise flat growth in U.S. electricity demand over the last 20 years.”
Silver’s best year ever
Silver, on the other hand, hit its highest level in almost 12 years. According to Peter Spina, founder and president of the trading websites GoldSeek.com and SilverSeek.com, the market is now “perfectly set up to really make a big move higher.”
“Eating through inventories” is what silver has been doing for four years in a row because of fundamental supply deficits, he said. At the same time, Western silver exchange-traded fund investors have been selling their silver holdings for years. Those people who sold have not bought anything.
It looks like the silver price is very low because of the price of gold, and the industrial and green metal demand components are also supporting the price of silver. This makes for an interesting situation for silver prices, said Spina.
Silver futures SI00 0.31% are the most popular. Thursday, SIZ24 0.31% hit a high of $33.02 an ounce, which was the highest amount during the day since January 2013. As of Thursday, it looked like it would gain about 11% in a month.
In the summer, silver prices were not rising very quickly because of fears about the destruction of demand caused by rising global growth risks, especially in China, said Peter Grant, vice president and senior metals strategist at Zaner Metals. “Consistent series of new record highs in gold helped to underpin the silver market,” though, and silver began to catch up to gold in September, when there was talk of Chinese stimulus coming soon.
The good news about China’s stimulus helps gold GC00 0.48% for the same reasons it helped silver and the overall market. As Grant said, “lower rates and more liquidity lift all boats.”
Still, Spina said that buyers should be ready for big changes in the price of silver and have a “higher risk tolerance” for it because of this.
Silver ‘under $30 an ounce now looks cheap.’
Peter Spina, SilverSeek.com
“Silver has the potential to make very quick, rapid price moves,” he said, and market conditions are right for such aggressive price moves now.
Through the gold perspective, however, the silver price looks “very cheap” given that it would would take more than 83 ounces of silver buy one ounce of gold, said Spina.
“Add the silver investor returning with strong industrial demand for the greenest precious metal — [and I see much m ore upside than I do downside,” he said. “Under $30 an ounce now looks cheap.”
