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After a decade of underperformance, commodities are experiencing a huge rally due to the Russia-Ukraine war, sky-high inflation, pent-up demand after the COVID-19 pandemic, widespread vaccination, chances of more oncoming COVID-19 antiviral pills and still-moderate rates.
From crude to metals to crops, commodities have been off to an awesome start to 2022 as investors are betting big on inflationary expectations and eyeing everything that provide hedges for inflation. It seems the rally will march higher in the coming days. Goldman Sachs says that this is a great entry point to buy commodities, as quoted on CNBC.
JPMorgan Chase & Co. said in early February that commodities have probably started a new supercycle – a prolonged period during which prices are pretty above their long-term trend. Commodities have seen four comparable cycles over the past 100 years, as quoted on a Bloomberg article.
Let’s delve a little deeper.
Likely Oil & Gas Rally
Oil prices jumped recently after Saudi indicated that OPEC could slash output. The Organization of the Petroleum Exporting Countries plans to lower production to correct the recent oil price decline driven by poor futures market liquidity and recessionary fears. The decision has been taken despite the fact that the oil market is extremely tight. This could boost oil prices again by the beginning of 2023, says one analyst, as quoted on Yahoo Finance. United States Oil Fund, LP (USO - Free Report) , though remained flat in the month, may be up for gains ahead.
Agriculture ETFs Likely to Continue to Soar
The agricultural commodity market has been an area to watch lately, given worries over the growing global food crisis and rising prices. Global food prices are surging at the fastest pace ever as the war in Ukraine has disrupted crop supplies, piling up more inflationary pain on consumers and worsening a global hunger crisis through markets for staple grains and vegetable oils. Invesco DB Agriculture Fund (DBA - Free Report) added 4.1% past month.
Many countries have resorted to food protectionism amid rising shortages. Export restrictions are making food prices even more expensive. Plus, drought is shrinking crops from the U.S. Farm Belt to China’s Yangtze River basin (per Bloomberg) and is weighing on the outlook for inflation.
Drive for a Clean Globe Aiding Metal Prices
There has been a global chorus for green economy. The Biden administration in the United States also supports the agenda greatly. The move looks to suppress fossil fuel like oil and gas while beef up the proportion of renewable energy like solar and wind. Such conversion to renewability requires proper infrastructure, batteries and electric vehicles, which in turn boosts the demand for various kinds of metals, as believed by market researchers.
“The mega-trends that we see playing out around global population growth, the electrification thematic and the energy transition, all of these bode well for commodity demand over the medium-to-long term,” Mike Henry, the chief executive officer of mining giant BHP Group, said recently in a Bloomberg Television interview.
Rising Inflation a Plus for Commodities
Inflation is red-hot currently across the globe. The war and the resultant rally in commodity prices has amplified inflation. Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio.
Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, commodities may gain as an alternative investment.
China’s Economic Stimulus
China’s recently launched stimulus measures. China boosted its economic stimulus with a further one trillion yuan ($146 billion) of measures to promote growth and limit the fallout of Covid lockdowns and the debacle in the property market. China is the world’s largest consumer of raw materials and may be driving commodity prices higher helped by stimulus (read: Best-Performing ETF Areas of Last Week).
ETFs in Focus
Against this backdrop, below we highlight a few commodity ETFs that have been on fire past week (as of Aug 29, 2022).
Image: Bigstock
5 Reasons to Buy Commodities ETFs Right Now
After a decade of underperformance, commodities are experiencing a huge rally due to the Russia-Ukraine war, sky-high inflation, pent-up demand after the COVID-19 pandemic, widespread vaccination, chances of more oncoming COVID-19 antiviral pills and still-moderate rates.
From crude to metals to crops, commodities have been off to an awesome start to 2022 as investors are betting big on inflationary expectations and eyeing everything that provide hedges for inflation. It seems the rally will march higher in the coming days. Goldman Sachs says that this is a great entry point to buy commodities, as quoted on CNBC.
JPMorgan Chase & Co. said in early February that commodities have probably started a new supercycle – a prolonged period during which prices are pretty above their long-term trend. Commodities have seen four comparable cycles over the past 100 years, as quoted on a Bloomberg article.
Let’s delve a little deeper.
Likely Oil & Gas Rally
Oil prices jumped recently after Saudi indicated that OPEC could slash output. The Organization of the Petroleum Exporting Countries plans to lower production to correct the recent oil price decline driven by poor futures market liquidity and recessionary fears. The decision has been taken despite the fact that the oil market is extremely tight. This could boost oil prices again by the beginning of 2023, says one analyst, as quoted on Yahoo Finance. United States Oil Fund, LP (USO - Free Report) , though remained flat in the month, may be up for gains ahead.
Agriculture ETFs Likely to Continue to Soar
The agricultural commodity market has been an area to watch lately, given worries over the growing global food crisis and rising prices. Global food prices are surging at the fastest pace ever as the war in Ukraine has disrupted crop supplies, piling up more inflationary pain on consumers and worsening a global hunger crisis through markets for staple grains and vegetable oils. Invesco DB Agriculture Fund (DBA - Free Report) added 4.1% past month.
Many countries have resorted to food protectionism amid rising shortages. Export restrictions are making food prices even more expensive. Plus, drought is shrinking crops from the U.S. Farm Belt to China’s Yangtze River basin (per Bloomberg) and is weighing on the outlook for inflation.
Drive for a Clean Globe Aiding Metal Prices
There has been a global chorus for green economy. The Biden administration in the United States also supports the agenda greatly. The move looks to suppress fossil fuel like oil and gas while beef up the proportion of renewable energy like solar and wind. Such conversion to renewability requires proper infrastructure, batteries and electric vehicles, which in turn boosts the demand for various kinds of metals, as believed by market researchers.
“The mega-trends that we see playing out around global population growth, the electrification thematic and the energy transition, all of these bode well for commodity demand over the medium-to-long term,” Mike Henry, the chief executive officer of mining giant BHP Group, said recently in a Bloomberg Television interview.
Rising Inflation a Plus for Commodities
Inflation is red-hot currently across the globe. The war and the resultant rally in commodity prices has amplified inflation. Commodities have historically provided some protection against inflation. They also add diversification benefits to an equity-focused portfolio.
Moreover, higher inflation is feared to weaken corporate earnings, which in turn, would hurt equity prices. In such a scenario, commodities may gain as an alternative investment.
China’s Economic Stimulus
China’s recently launched stimulus measures. China boosted its economic stimulus with a further one trillion yuan ($146 billion) of measures to promote growth and limit the fallout of Covid lockdowns and the debacle in the property market. China is the world’s largest consumer of raw materials and may be driving commodity prices higher helped by stimulus (read: Best-Performing ETF Areas of Last Week).
ETFs in Focus
Against this backdrop, below we highlight a few commodity ETFs that have been on fire past week (as of Aug 29, 2022).
iPath S&P GSCI Total Return Index ETN – Up 3.6%
iShares S&P GSCI Commodity-Indexed Trust (GSG - Free Report) – Up 3.1%
United States Commodity Index Fund (USCI - Free Report) – Up 3.1%
USCF SummerHaven Dynamic Commodity Strategy No K-1 Fund (SDCI - Free Report) – Up 2.9%
iShares U.S. ETF Trust iShares GSCI Commodity Dynamic Roll Strategy ETF (COMT - Free Report) – Up 2.7%
Invesco DB Commodity Index Tracking Fund (DBC - Free Report) – Up 2.6%