Why Commodities and ETFs May Have Best Quarter Since Mid-2008

March 31st at 11:00am by Tom Lydon

Commodity ETFsAs of midday, commodities and the sector’s related exchange traded funds (ETFs) are headed for their best quarter since the middle of last year. What gives?

Last year marked a boom period for commodities, and many of them hit records – most notably, oil and gold. Around the middle of July, however, a deep correction began that never really fully righted itself. But on the last trading day of the first quarter, the Reuters-Jefferies CRB Index, which tracks prices across 19 mostly U.S.-traded commodities is down 6% for the quarter.

This is after losing 25% and 35% in the third and fourth quarters, respectively, last year, reports Reuters. Analysts have some reasons why there’s been a slowdown in the index’s decline:

  • The global financial crisis sent investors to seek shelter in safe-haven assets and the dollar, which sent commodities down and made them more expensive; this process could be winding down
  • Oil is being propped up by firmer stocks, as well as a modest rebound in the euro against the dollar
  • Japan’s copper exports to China are likely to remain robust until May or Jone

Investors are still hyper-sensitive to any weak data, and the wave of news coming this week could spark a sharper drop in commodity prices. Other economies are still experiencing their own troubles, too: for example, in Japan, unemployment is at a three-year high and the country is in its worst recession since World War II.

  • iShares GSCI Commodity-Indexed Trust Fund (GSG): down 7% in the last three months; down 13.4% year-to-date

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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