What Is the Difference Between Metals and Softs?

Supply and Demand Dynamics - A short supply situation typically leads to a temporary price increase, which often reverts once the supply issue is resolved [1] - Cocoa prices from 2020 to 2023 were influenced by production problems in western Africa, particularly in Cote d'Ivoire, Ghana, and Nigeria [2] - Coffee futures reached an all-time high of $4.4085 in February and remained near $4.00 in mid-October, with Brazil, Vietnam, and Colombia as leading producers facing early weather issues [2][3] Market Behavior - Supply-driven markets experience price increases as buyers seek immediate supplies, often resulting in inverted futures spreads, indicating a short supply situation [3] - Demand-driven markets arise from new demand pulling on stable or growing supplies, leading to long-term price changes, as seen in the corn market post-Energy Policy Act of 2005 [5] Metals Market Insights - The gold and silver markets are not influenced by weather, indicating a demand-driven rally rather than a supply-driven one [6] - Silver demand is increasing due to industrial use, particularly in the solar power sector, although a decline in demand of about 11% is anticipated [6] - Gold demand is expected to remain strong due to global uncertainties surrounding US policies, with selloffs likely met with renewed buying interest [7][8]