Jodie Gunzberg told Metal Bulletin that a lot of investors are looking for diversification and inflation protection and think the current move lower in commodities prices “might be the opportunity of a lifetime".
“Diversification and inflation protection have been the hallmarks of why investors use commodities, and I think for some time after the global financial crisis – when the commodities spike [correlated] with equities – investors doubted whether diversification was real,” she said.
“While people can argue, 'commodities didn’t give me any diversification in 2008', they definitely did in times like the Persian Gulf war or Black Monday – there are a lot of examples through history and financial crises and in political crises where [commodities] hold up [as a hedge]. People think now, with gold and oil down so much, the most together they’ve been in 30 years, it’s hard to pass [commodities] up,” she added.
The decline in price has knocked the S&P Goldman Sachs Commodity Index (S&P GSCI), which lost 13.6% month-to-date through July 27, 2015, bringing its level to the lowest since February 25, 2002.
It has now fallen lower than it was at the bottom of the 2008 global financial crisis.
Gunzberg noted that every single one of the 24 commodities in the S&P GSCI is negative for the month except lean hogs, which is just barely positive by 18 basis points but only when taking into account the positive roll yield; otherwise that is negative too, by 14.5%.
Throughout the history of the index, 23 commodities have been negative together in a month only once – in September 2008 – and all 24 were negative together only once in the following month of October 2008. The single performer in September 2008 was gold, clearly a different situation to today.
“July’s move in the S&P GSCI was a one-time, all forces moving in the same direction at the same time, coincidence,” Gunzberg said, attributing a large portion of the decline to supply issues across the commodities complex.
“We’ve seen a slowdown in Chinese growth for a while now, but what’s happened on the supply side is much more interesting. Last year in May we saw Russia and China do a natural gas deal and I think that may have been the catalyst for OPEC to start supplying extra in order to maintain their market share and push prices down,” she told Metal Bulletin.
She also noted that the potential lifting of sanctions on Iran could bring on another one million barrels of oil a day. Weather-related factors have meanwhile boosted the supply of agricultural commodities, while base metals are largely in surplus and are also being hit by slowing demand and a stronger dollar, she said.