Commodities have performed well so far this year, with energy among the sector’s biggest winners as overall expectations for global recovery support a brighter outlook for demand.
Looking at commodity prices in the coming months, the market is not worried about “the next strain of potentially mutated Covid in Europe,” says Adam Koos, president of the Libertas Wealth Management Group. “Price trends support the thesis that the overall economy will continue to improve.”
To date, the S&P GSCI index, which tracks 24 commodity futures traded on the stock exchange, has risen by about 12% since March 23rd. The S&P GSCI Energy Index sub-index trades over 18% more.
Investor optimism about improving the outlook for demand since the introduction of the Covid-19 vaccine has increased the chances of the stops being removed forever and helped boost a set of commodities that rely on economic activity, says Fawad Razaqzada, a market analyst at online brokerage ThinkMarkets.
However, that optimistic outlook “weighed the assets of the refuge like gold and silver,” which was also harmed by rising bond yields.
Gold futures, based on the most active contracts since March 24, are trading at almost 9% this year, while silver has fallen over 4%.
Razaqzada attributes the “over-recovery” of oil to the rise from a historic drop to negative crude oil prices in West Texas in April 2020, supply restrictions by the OPEC + alliance and improving the outlook for demand.
So far this year, futures for the U.S. West Texas Intermediate have risen by about 26%, while Brent’s global benchmark has risen 24%. Among energy goods, gasoline futures stand out, which increased by about 41%.
Regardless of “how and where we work for our employers,” oil and gasoline in particular point to higher demand in the world, and travel will recover, Koos says.
Other commodities that have increased this year also include lean pigs, up 45%, and steel, over 40%, on futures markets.
Rising Chinese demand, after the first phase of the US-China trade agreement, devastation of pig herds in China caused by African swine fever and rapidly growing US demand for pork is behind the “fantastic” pig market in terms of exports and cash trade, says John Payne, senior broker for futures and options in Daniels Trading. Also, seasonally, the best time for pig rallies is in the summer, he says.
Meanwhile, strength in domestic hot-rolled coil steel in the U.S. Midwest “clearly supports the theory that prices are turning toward the future,” Koos says. There are likely to be more government infrastructure-focused projects, and Steel will be the beneficiary of those projects, he says.
However, the rise in iron ore prices, which trade almost 7% during the year, is fading relative to steel growth. Some analysts warn that China’s efforts to reduce pollution could lead to restrictions on steel production, with the demand for iron ore being the first to be hit.
However, given the significant gains from the goods so far this year, the property class “probably has to give a little vent here,” Koos says. That doesn’t mean lower prices in the long run. “After such a strong move since the end of 2020, the goods could use some time for consolidation and side shredding.”
Koos sees higher commodity prices in the future, as long as and
Invesco DB Commodity Index Tracking Fund
(DBC), a deputy commodity investor, broke above the former support level at $ 18. If the DBC stock exchange fund is above that key level, “then I would like to be a long commodity,” he says.