As the markets anticipate the Federal Reserve’s near-zero interest rate policy will be here for a while longer, we are back in a risk-on environment, with commodity-related exchange traded funds breaking out.
Last week, the GreenHaven Continuous Commodity Index Fund (NYSEArca: GCC) rose 3.6%, PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) gained 4.3%, iPath Dow Jones-UBS Commodity Index Total Return ETN (NYSEArca: DJP) increased 4.1% and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) advanced 5.6%. The broad commodity ETFs are now back above their short-term, 50-day simple moving averages.
GCC follows an equal-weight methodology that covers 17 commodity positions. DBC, the largest commodity-related ETF, tracks a broad basket of the 14 most heavily traded commodities and uses an optimum yield methodology that tries to limit the negative effects of contango. DJP is an exchange traded note that tracks the Bloomberg Commodity Index Total Return. Lastly, GSG tracks the widely observed S&P GSCI Total Return Index. It should be noted that these broad commodity ETFs also include a heavy tilt toward the energy commodities, which have surged over 12% the past week on the lower supply outlook. [Oil ETFs Big Rally Ahead?]
Commodities were headed toward their largest weekly advance since 2012, Bloomberg reports.
“It’s clearly been a risk-on moment after what’s been a pretty prolonged selloff,” Edwin Gutierrez, head of emerging-market sovereign debt at Aberdeen Asset Management, told the Wall Street Journal.
The prospect of an extended period of ultra-low interest rates in the U.S. has been supporting the recent gains in the commodity space. The outlook has eased fears over dollar appreciation and strains in developing economies.