Commodity markets rally as demand for raw materials climbs
Commodity markets have soared this year as reopening economies and the transition to green energy have driven a boom in demand for raw materials.
Commodity markets have soared this year, but investors had to choose their bets carefully to profit. The S&P GSCI index of 24 major raw materials, a key benchmark, has climbed by 30% since the start of the year. Reopening economies and the green transition have driven a boom in demand for raw materials.
“Green metals”, those needed in the shift to renewable energy and electric vehicles, have done especially well since the start of the year, with copper climbing by 23%, nickel up by almost a fifth and aluminium soaring by 7%. The standout performer has been lithium, a vital ingredient used for making rechargeable batteries. The metal has gained 240% this year. Agricultural – “soft” – commodities have also surged, prompting fears about global food shortages. US wheat and corn prices have risen by 21% and 23% respectively. Cotton, up 37%, and coffee, 84%, have climbed by even more.
While investors grow excited about the battery revolution, more carbon-intensive energy sources have also rallied. Brent crude oil has gained 38% since the start of the year. Newcastle Coal futures, an Australian benchmark of thermal coal prices, have more than doubled.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It has been a year of two halves for steelmaking-ingredient iron ore. Prices soared to a record high in May due to strong Chinese demand, then slumped in the summer as steel production fell and the local property market wobbled. Iron ore is 28% lower than on 1 January.
Precious metals disappoint
It has been a year to forget for precious metals. Platinum is down by 13%. Silver has fallen by 15% so far this year, putting it on track for its biggest annual loss since 2014, says Myra Saefong in Barron’s. You might have expected the wider industrial-metals rally to boost silver – the metal is used in industry as well as for jewellery. However, that is outweighed by silver’s status as an investment metal, says Decio Nascimento of Norbury Partners. Investors regard silver as a “high-beta version of gold”, meaning “when gold falls, silver falls even more”. Gold has slipped by 5% since the start of the year.
Gold’s failure to rally in response to the highest US inflation in 39 years is puzzling, says Clyde Russell on Reuters. It is supposed to protect investors from currency debasement, but perhaps gold is really a hedge against turmoil rather than inflation: the last two big gold rallies (2008-2011 and 2020) were caused by “fears of a global economic and financial crisis” rather than rising prices.
Gold looks set to struggle again in 2022, says Warren Patterson of ING. The metal pays no dividend, so some will be tempted to sell it to take advantage of rising interest rates. What might trigger a gold rally? “Further severe waves of Covid-19” that cause central banks to do “a U-turn on tightening”.
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Alex Rankine is Moneyweek's markets editor
-
Water bills set to rise by 21% a year – how to cut costs
Households could see their water bills soar by roughly 21% annually, but suppliers warn it’s not enough to address essential repairs.
By Oojal Dhanjal Published
-
Should you invest in Canada?
Canada presents a compelling opportunity for investors who want to look beyond the US. Greg Eckel of Canadian General Investments highlights four favourites
By Greg Eckel Published
-
What will a broken-up Google look like?
The US courts have ruled that Google is a monopoly, leaving it facing the prospect of a break-up. WIll that be a good thing?
By Matthew Lynn Published
-
How will the UK gambling sector be hit by the Budget?
There are concerns for the UK gambling sector in the lead-up to the Autumn Budget. What could be on the cards?
By Dr Matthew Partridge Published
-
HSBC returns to cost-cutting plan
HSBC is set to revamp its commercial banking division – but will it come at a cost?
By Dr Matthew Partridge Published
-
Pfizer shares rise as US investor takes $1 billion stake
Pfizer shares are on the up since US activist investor Starboard Value built up a stake in the drug maker. But strategic options appear limited
By Dr Matthew Partridge Published
-
Qualcomm could acquire rival Intel – but securing the deal won't be easy
A tie-up between Qualcomm and its semiconductor rival Intel would be a coup. But multiple regulatory and commercial hurdles lie ahead.
By Dr Matthew Partridge Published
-
How to invest in the quiet market months
Here's how to invest in the quiet market months, since “sell in May” hasn’t paid off this year.
By Cris Sholto Heaton Published
-
Spire Healthcare: invest in the booming demand for private healthcare
Spire Healthcare is one of the few listed companies benefiting from the growing trend in private healthcare. Should you invest?
By Rupert Hargreaves Published
-
Are insurance companies a good investment?
Costs may be soaring but the insurance sector is currently going through one of its most profitable periods. The market has been slow to realise the opportunity here
By Rupert Hargreaves Published