Commodities are on a tear in 2022, driven by consumer spending, supply chain issues and most recently, tensions with Russia. Brent and WTI oil are well above $100/bbl., up more than 50%.[1] Nickel was up over 200% at one point during the month- a move so large that the metallic value of a US $0.05 nickel was worth twice its monetary value. Finally, broad-based commodities indices like the S&P GSCI and Bloomberg Commodity (BCOM) indices are up anywhere between 30% and 40%. Broad-based commodities have provided solid returns for investment portfolios, but the exponential price increase for many commodities may require investors to re-evaluate the magnitude of their commodity holdings, and potentially rotate some of that exposure into gold.
We’ve discussed extensively that gold is the most effective commodity investment separating itself from individual and broad-based commodity indices. While an inflationary environment is generally supportive for commodities, gold has historically outperformed broad-based commodities. Historical analysis shows that gold returns averaged 25% in years when inflation was above 5%. Commodities have returned just over 20% – but that includes the strong commodity performance over the past 15 months. To put things into perspective, February’s US CPI showed a 7.9% y-o-y increase.
Read the full article: Download Pdf
References:
[1] As of 9 March 2022