Analysts at ETFS have pointed to signs that after five years of underperformance there are signs of a turning point for commodities as an asset class.
The view is expressed in the latest Monthly Monitor authored by Martin Arnold, director – Global FX & commodity strategist; Edith Southammakosane, director and Nitesh Shah, associate director – research analysts; and Aneeka Gupta, associate – research analyst
“Commodities as an asset class have been underperforming for the past five years. However, in 2015 we have observed clear signs that a turning point is in sight,” they noted.
“The prolonged period of underperformance has driven miners, smelters, drillers and other resource extractors to cut capital expenditure, sowing the seeds for supply tightness in years to come. We can see that the cuts to capex are already biting into supply. Copper, platinum, palladium and silver for example have been in a supply deficit for years.”
“The fact that prices have not risen in response to this situation appears be a symptom of poor sentiment pervading the sector. The fundamentals are clearly more positive. The extent of commodities’ underperformance has narrowed in 2015. Year-to-date performance of gold in US dollars for example is in line with the Russell 2000 equity index despite all the fears of a rising interest rate environment disproportionately affecting the metal. In a matter of weeks the US central bank is likely to raise interest rates for the first time in nine years. The expectation has weighed on the metal’s performance. However, the typical ‘buy on the rumour, sell on the news’ investor behaviour, could benefit gold after the move is made.”
According to FE data, the MSCI World Commodities Producer index fell by a quarter between 1 April and 1 October this year – on a euro gross total return basis. However, from 1 October to 27 November, the index bounced over 14%.
Over five years to 27 November, the index has fallen and risen several times, to record just a -0.5% return over the period.