Displaying items by tag: Commodities
A noteworthy development in 2024 has been soaring uranium prices. The radioactive metal was up more than 90% in 2023 and is now at its highest levels since 2007. According to Ole Hansen, the head of commodity strategy at Saxo Bank, this move is being driven by increased demand from ETFs holding physical inventory and utilities who were not hedging due to years of low prices.
Prices moved past $100 per pound last week following an announcement from Kazakhstan's state uranium company that it may fail to meet production goals due to construction delays and difficulty sourcing raw materials. This follows a slew of production downgrades from a variety of producers in 2023, adding to pressure on the supply side.
On the demand side, analysts point to the Sprott Physical Uranium Trust and Yellow Cake as marginal sources of gold demand, contributing to the ‘squeeze’. As a result, many now expect uranium to exceed all-time highs from June 2007 of $136 per pound, and uranium miner equities have also been following the metal higher.
Longer-term, many believe that the uranium market is at a deficit given the gap between yearly production and consumption. Currently, the gap has been made up by huge amounts of secondary supply, yet this inventory is also rapidly being depleted.
Finsum: Uranium prices have continued momentum from last year. Many believe new, all-time highs are in store given increased demand from ETFs and utilities, while production is impaired.
The US Department of Labor is proposing a rule to close loopholes around the fiduciary standard. Specifically, they are looking at rollovers from 401(k) plans to IRAs; products not regulated by the SEC such as indexed annuities and commodities; and recommendations to employers on which funds to offer in 401(k) plans.
The SEC raised the bar for financial advice in 2019, applying the fiduciary standard to most types of investments. Yet, there are certain areas where the SEC doesn’t have jurisdiction. However, the Department of Labor does have regulatory authority over retirement accounts.
The fiduciary standard mandates that any investment recommendations need to be made in the best interest of clients and that any conflicts of interest should be disclosed. This has major implications given that nearly 6 million Americans rollover approximately $600 billion into IRAs every year, while 86 million Americans are putting money into their 401(k) plans. Indexed annuity sales were $79 billion in 2022 and expected to easily exceed this amount in 2023.
According to the administration, hidden costs and junk fees are denting households’ retirement savings by up to 20%. However, there is some pushback as critics contend that these rules will lead to more confusion, expenses for compliance, and eventually negatively affect retirement plans and retirees.
Finsum: The Biden Administration is looking to expand the fiduciary standard to cover areas that fall outside of the SEC’s jurisdiction such as commodities and fixed annuity products.
Last year was a terrible year for the markets, even for many hedge funds. According to investment data firm Preqin, hedge fund returns were down 6.5% in 2022, the largest drop since the 13% decline in 2008 during the financial crisis. That’s why global hedge fund managers are preparing for persistent inflation by seeking exposure to commodities and bonds that perform well in inflationary environments. A majority of 10 global asset and hedge fund managers that were surveyed by Reuters said commodities are undervalued and should thrive as global inflation stays elevated this year. In addition, they are also seeking inflation-linked bonds to shield against price rises, and exposure to certain corporate credit, as higher rates restore differentiation in company bond spreads. For instance, London-based hedge fund manager, Crispin Odey is betting inflation will remain high. He told Reuters that "Commodities will start to rise again. They've sold off very heavily and are below operating costs in many instances." Danielle Pizzo, chief strategy officer at Schonfeld Strategic Advisors, told Reuters that her firm “Aims to focus more on investment grade and high-yield bonds this year as well as commodities.”
Finsum:Hedge funds, which saw the largest drop in performance last year since the financial crisis, are concerned about persistent inflation and are seeking exposure to commodities and select bonds.
If you’ve had a bit more concern about the economy and your financial portfolio recently, then you’re far from alone. With ongoing market tumult and surging inflation, it’s reasonable to wonder what the future holds for your finances.
Fortunately, there are ways to help hedge against inflation. Adding commodity exposure to your portfolio can help diversify an existing portfolio of stocks and bonds, and potentially lower risk, while helping to boost return potential—particularly, during periods of rising inflation.
Oil prices have begun to stagnate just a hair, but they are still high enough to spur lots of production. U.S. oil output is expected to be 12.86 million barrels a day according to East Daley Capital, which is a 23% increase from their December forecast. Most of the increased production will come from shale Fields in the Permian Basin, as elevated prices can sustain drilling and production here. Additionally, supply chains are relatively more lubricated, the Russia-Ukraine conflict looks ongoing, and a massive Covid resurgence seems like a small probability. The Dallas said profits are more than sustainable to continue drilling in the Permian Basin and other shale sites.
Finsum: This increased production could be enough to finally cap the upward moving gas prices, but that effect could take some time.