Broad commodity exchange traded funds are trading at all time lows as gold, copper and other commodities approach levels not seen since the global financial crisis.
Year-to-date, the GreenHaven Continuous Commodity Index Fund (NYSEArca: GCC) fell 17.1%, PowerShares DB Commodity Index Tracking Fund (NYSEArca: DBC) declined 20.8%, iPath Dow Jones-UBS Commodity Index Total Return ETN (NYSEArca: DJP) decreased 22.7%% and iShares GSCI Commodity-Indexed Trust (NYSEArca: GSG) retreated 25.0%.
The Bloomberg Commodity Spot Index, which tracks 22 raw materials, was moving toward its lowest since the 2008-09 crisis, reports Javier Blas for Bloomberg.
The commodities market does not have a lot positive fundamental factors to help dig it out of the current hole. Yusuf Alireza, chief executive of Noble Group Ltd., one of the world’s largest commodities traders, argues that there are no real changes in supply and demand that “will result in higher prices any time soon.”
“I don’t see any step change on the demand — and we haven’t seen any significant change in supply either,” Alireza said, adding that the stronger U.S. dollar was also a “headwind” for commodity prices into 2016.
The U.S. dollar has been strengthening on greater speculation that the Federal Reserve will begin tightening its monetary policy in December after the surprisingly strong October jobs report. Most raw materials are priced in dollars and historically a strong USD has pressured commodities.
“The new-found weakness is about the massive quick changes we’ve had in the probability of Fed tightening,” Jim Paulsen, chief investment strategist at Wells Capital Management, told Bloomberg. “It directly affects competitive returns. Higher rates also raise the probability of slower growth and a stronger dollar, which are negative for commodities. We’ve got a very weak global-growth scene now, which is magnifying the negative impact.”
The stronger dollar and rate hike expectations have also lessened demand for gold ETFs, which have seen demand plunge to six-year lows, reports Ranjeetha Pakiam for Bloomberg. Along with the dollar pressure, gold is less attractive in a rising rate environment because the asset does not generate a yield.
Year-to-date, the SPDR Gold Shares (NYSEArca: GLD), iShares Gold Trust (NYSEArca: IAU) and ETFS Physical Swiss Gold Shares (NYSEArca: SGOL) have dropped over 8%.
Additionally, some commodities, like copper, are lower on the economic weakness in China, a major raw materials consumer, and other emerging markets.
“Global growth is weak,” Alireza added.
Copper prices are also trading around six-year lows, with the iPath Bloomberg Copper Subindex Total Return ETN (NYSEArca: JJC) down 24.1% and United States Copper Index ETF (NYSEArca: CPER) 22.2% lower year-to-date.
For more information on the commodities market, visit our commodity ETFs category.
Max Chen contributed to this article.