PI Global Investments
Precious Metals

Can commodities make a comeback?

Mixed market signals are presenting a confusing narrative for investors trying to pinpoint peak inflation. With recent drops in crude prices and industrial metals like copper and aluminum tumbling, many are looking to commodities for a better glimpse of the macroeconomic picture.

Commodity prices have slid this year amid rising interest rates, with the Invesco DB Base Metals Fund (DBB) dipping to a 52-week low on Tuesday.  

“If you look at all the major commodity prices around the world, all are now back or below where they were [in late February] when Russia invaded Ukraine,” Will Rhind, CEO of GraniteShares, told Seema Mody in an interview on CNBC’s “ETF Edge” on Wednesday. Iron ore is the one major exception.

But Rhind noted that the broader trend started in 2020 when oil and the rest of the commodity complex bottomed out with the market.

“If you look at GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB), we’re still up 10% year to date,” he said. “But I think a lot of that premium we saw, particularly over Russia-Ukraine, has now come out of the market.”

While dividend and ultra-short-term bond ETFs have dominated net inflows, Todd Rosenbluth, research head at VettaFi, said commodities ETFs have been a bright surprise for the first half of 2022, gathering $15 billion.

“We saw demand for precious metal ETFs like GLD and IAU,” Rosenbluth said in an interview on CNBC’s ‘ETF Edge‘ on Wednesday. “We’ve also seen, in greater demand perhaps, for the more broadly diversified suite of commodity ETFs.”

Rosenbluth pointed to Invesco’s PDBC, which has exposure not only to precious metals but to different sectors like agriculture and energy.

“We’re seeing advisors want that diversification,” he said. “They like gold, but they also want exposure to those other bond sectors.”

Gold has shed more than $300 per ounce since the Federal Reserve began raising interest rates in March, hitting a nine-month low on Wednesday. Meanwhile, the dollar has shown to be a safe haven for investors, ascending to a near two-decade high the same day.

“This is an environment where we have a really strong dollar, but historically gold prices have responded negatively,” Rhind said.

Despite the adverse relationship, Rhind explained that gold has still managed to maintain its appeal given the pressures on the dollar in a rising-interest rate environment.

“If rates start to come down or at least destabilize from these levels and we see some dollar weakness, I think that gold is well positioned,” he said.  

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