Displaying items by tag: Commodities
Something very interesting is happening across commodities markets—they are rallying. The reason this is interesting is it is a broad-based rally, not just in a narrow safe haven like gold. Oil, a major barometer for growth, is also jumping. The reasons why are two-part. Firstly, the US and China seemed to ease trade tensions somewhat this week at the G20; but secondly, OPEC has said it is cutting oil output. Metals, grains, and emerging markets also rallied.
FINSUM: This makes sense because a de-escalation of the trade war would help the global economy. Further, a reduction in tariffs would simply make the flow of commodities and goods smoother once again.
Gold has been doing well recently. Between global trade turmoil, a falling economy, and decreasing yields, the metal has thrived. Here are three reasons the gains won’t reverse. The first is that the stock market continues to look risky, meaning gold’s allure as a safe haven seems assured. Secondly, yields on bonds have a definitively downward direction, which makes gold more attractive. Finally, inflation is unlikely to stay low forever. When it starts to rise, it would give investors another reason to bet on gold instead of bonds.
FINSUM: We don’t really think inflation will be much of a factor for gold in the immediate term, but the first two points are material.
Gold is doing well, and it is no surprise. Markets are worried about an economic downturn, and yields are falling, both of which are bullish for gold. The metal is up almost 7% in July alone. But what is the best way to play the commodity using ETFs? Owning gold directly is costly, so passive structures are great. Consider the SPDR Gold Shares ETF (0.40% fee), the iShares Gold Trust (0.25%), and the GraniteShares Gold Trust.
FINSUM: Passive is definitely the best way to play gold. We like the outlook for the metal as rates and yields are definitely headed lower, which helps gold in multiple ways.
Gold has been doing well, and it is no surprise as to why. Both the economy and the trade war are having a bullish effect on gold, which has responded in line with investor fears. Additionally, worries over tensions in the Middle East and the protests in Hong Kong have offered a short-term boost to prices. Stephen Innes, managing partner at Vanguard Markets, says “Today’s price action suggests the market is not long enough gold, especially by historical standards, for this elevated level risk as investors have remained far too complacent to mounting risk in Hong Kong and the smolder explosive political powder keg in the Middle East”.
FINSUM: Gold has been in a bear market for so long that it had many times seemed to have lost its role in a portfolio. However, it appears to once again be finding its footing.
Oil is looking likely to fall sharply, and not just because the world’s economy is looking soft. According to the IEA, oil supply is likely to dwarf demand next year, which will very likely lead to lower prices. Many new projects will come online, boosting oil supply far more than demand, which may only grow slightly, or even shrink if the economy heads downward. This will put more pressure on OPEC.
FINSUM: Nothing is looking bullish about oil other than geopolitical tensions (the effects of which tend to blow over quickly).