Commodities Expected to Hold Gains During Winter
November 10, 2022
Read Time 2 MIN
Macro Outlook: Commodities Supported by Steady Gains in Energy
October was a relatively quiet month for most markets, commodities included. The U.S. dollar was slightly lower despite U.S. 2-year yields rising by 20 basis points. The slightly lower dollar supported a small gain for most commodity indexes; the UBS Constant Maturity Commodity Index (CMCI) gained approximately 3.2%.
The U.S. Federal Reserve (Fed) continues to raise interest rates to fight inflation, which has supported the U.S. dollar rally for most of the year. Commodity indexes have maintained good gains all year in the face of rising interest rates and the stronger U.S. dollar.
Once again, the energy sector was the star performer, gaining an estimated 8.8%. Supply constraints have broadly supported commodity markets ever since Russia invaded Ukraine in March. OPEC, plus Russia, surprised investors and the U.S. Administration in early October when they announced a cut in crude oil production.
Index & Sector Review: Natural Gas Prices Continue to Struggle Amidst Energy Gains
In the energy sector, WTI crude oil and Brent crude oil, both gained about 10% in October on the OPEC production cuts. However, natural gas prices fell during the month due to storage and pipeline capacity limitations. Europe has reached its LNG (liquified natural gas) import capacity, creating a backlog of tankers that are unable to offload their cargoes. The decline in natural gas prices helped CMCI’s relative performance vs the Bloomberg Commodity Index (BCOM); the latter has an outsized exposure to natural gas (approximately 13% vs CMCI’s 3%). There is a global shortage of diesel and heating oil and similar products because of limited refining capacity. U.S. heating oil gained 11% in October.
The agriculture and livestock sectors both made small gains for the month. Live hogs were up 11% and soybean oil gained 14%. Coffee and cotton both fell sharply, offsetting some of the gains.
Industrial metals were slightly lower on the month due to the continued China zero COVID policies, and precious metals fell 1% on a drop in gold prices.
As the year wraps up, we expect commodity prices to hold their gains during the winter months, especially if winter is colder than expected in the U.S. and Europe. It’s possible for most commodity indexes to trade back up toward the highs of this year.
CMCI Performance Relative to Bloomberg Commodity
Source: Bloomberg. Data as of October 2022.
Learn more about the VanEck CM Commodity Index Fund, which seeks to track, before fees and expenses, the CMCI.
Please note that VanEck may oﬀer investments products that invest in the asset class(es) or industries included in this blog.
This is not an oﬀer to buy or sell, or a recommendation to buy or sell any of the securities/ﬁnancial instruments mentioned herein. The information presented does not involve the rendering of personalized investment, ﬁnancial, legal, or tax advice. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reﬂect actual results, are valid as of the date of this communication and subject to change without notice. Information provided by third party sources are believed to be reliable and have not been independently veriﬁed for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.
BCOM provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.
UBS and Bloomberg own or exclusively license, solely or jointly as agreed between them, all proprietary rights with respect to the Index. In no way do UBS or Bloomberg sponsor or endorse, nor are they otherwise involved in the issuance and offering of the Fund, nor do either of them make any representation or warranty, express or implied, to the holders of the Fund or any member of the public regarding the advisability of investing in the Fund or commodities generally or in futures particularly, or as to results to be obtained from the use of the Index or from the Fund.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities are assets that have tangible properties, such as oil, metals, and agriculture. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. The value of a commodity-linked derivative is generally based on price movements of a commodity, a commodity futures contract, a commodity index or other economic variables based on the commodity markets. Derivatives use leverage, which may exaggerate a loss. The Fund is subject to the risks associated with its investments in credit, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, counterparty, debt securities, derivatives, index tracking and data, industry concentration, money market funds, management, market, operational, regulatory, repurchase and reverse repurchase agreements, subsidiary risks and U.S. government securities.. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. At any time, the risk of loss of any individual security held by the Fund could be significantly higher than 50% of the security’s value. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2022 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Securities Corporation.
February 02, 2023
The resource transition continues to progress as financing, climate goals and consumer demand drive the shift towards a more sustainable economy.
January 19, 2023
Resource equities exhibited strong relative gains in Q4, outperforming both global equities and bonds. The most important issue for the resource equity sector may be the path to opening in China.
January 13, 2023
CMCI’s index design of monthly rebalancing back to its target weightings paid off at the end of 2022. This helped it outperform BCOM, the industry’s primary benchmark, in December.
December 21, 2022
Equinor, an international energy company, is one of the best-positioned companies to transition to a low-carbon future, in our view.