Commodity indexes have been offering some high returns during the first half of the year despite major sectors tanking. The BCOM index managed to gain around 33% between January and June 2022.
However, it seems like commodity markets are about to join the bearish party showing a decline during the last month keeping investors uncertain if they are able to make a comeback. The good news is that gold is still well-positioned.
While the Fed tightens credits and raises the interest rate by 0.75% and investors start to price in recession, is it really the time to write commodities off? One thing is clear. Traders are seeking diversification. On the one hand, they look for exposure to other sectors. On the other hand, advisors still appreciate gold. So, we can say it is not yet the time to run amok.
The market signals keep investors confused in an effort to pinpoint the inflation peak. If we look at the commodity prices across the globe, most of them have bounced back or moved even below their initial value spotted in February (before the Russian-Ukrainian conflict).
However, geopolitical events are not to blame. The broader trend took off back in 2020 with crude oil prices heading to the bottom along with other commodities. Oppositely, short-term and dividend ETF commodities have seen a stunning increase during the first half of the year gaining around $15 billion.
The markets also witnessed a growing demand for popular metal ETFs like GLD and IAU, as the major tools to keep the commodity ETF portfolios as diversified as possible. Investors are exposed to major precious metals including gold as well as other bond sectors such as energy and agriculture.
With the interest rate increase initiated by the Fed, we have seen gold shedding around $300 per ounce. At the same time, USD kept investors safe. At first sight, it may seem like gold prices are responding negatively to a strengthening dollar.
However, relations between the USD and gold are quite adverse. We should expect the dollar to be put under even harder pressure in the near future, especially when considering developing inflation and a rising-rate environment. The currency can destabilize going far beyond current levels. In this situation, gold looks well-positioned. All we need is to keep an eye on major factors that move the gold price.