Commodities Notched Their Best Year Since 2009, Despite Precious Metals Weakness

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Every year around this time, we always update the periodic table of popular commodity returns. I invite you to compare the returns of 2021 with the previous years, download the PDF of the table and much more Click here

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Commodities as a whole had their best year in more than a decade, due in large part to inflation resulting from unprecedented global monetary and fiscal stimulus. The Businesshala Commodity Spot Index ended 2021 with a gain of 27%, the biggest annual jump since 2009, when the financial crisis similarly prompted governments and central banks to fill their economies with liquidity.

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The best-performing commodity component was energy, with natural gas up close to 47%, crude up 55% and Powder River Basin coal up 160%. Energy grew at twice the rate as the second best category, industrial metals. Aluminum increased these contents by 42%, followed by zinc (up 31%), nickel (26%), copper (26%) and lead (18%).

A challenging year for precious metals, gold highly undervalued

As expected, precious metals were the worst-performing category, down 8%. Neither component ended the year in positive territory. This includes gold, which was the best performer of the bunch with a loss of 3.6 per cent, despite inflation being at a decades-high.

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The slowdown of platinum and palladium is easily explained. As you may know, the two metals are used in the production of pollution-scrubbing catalytic converters in automobiles. However, carmakers were hampered by global semiconductor chip shortages, which slowed production of new vehicles and hurt demand for platinum and palladium. Looking ahead, demand could take a more significant hit as electric vehicles (EVs), which do not require catalytic converters, enter the mainstream.

The main headwind slowing gold in 2021 was the belief that the Federal Reserve would raise rates sooner than expected and reduce its asset holdings to cushion inflation. I’ve seen forecasts of four rate hikes in 2022, but I don’t believe the Fed will be so aggressive and risky that it will crash the economy and the stock market.

Still, investors gave up on the yellow metal in 2021. Spotted Gold-Back ETFs $9 billion outflow, According to the World Gold Council (WGC), the majority of that rotation happens in North American funds. This represents the largest annual outflow since 2013. However, the WGC points out that despite the sale, gold ETF holdings remained well above pre-pandemic levels, as the fund experienced a record inflow of $49 billion in 2020.

Bloom I believe gold is undervalued right now, and as I told Investing News Network’s Charlotte McLeod last week, the metal should really be worth about $1,000 an ounce more than it currently is. . Gold’s standard deviation over a rolling 12-month period is about 20%. At today’s prices, a standard deviation move would push the metal’s value to around $2,150, a new all-time high.

I am not anticipating that this will happen. It’s just math and probability. That said, we could be looking at another challenging year as the Fed prepares to tighten monetary policy. This will strengthen the US dollar, which is a headwind for the gold price.

Comeback Kid: Fossil Fuel rises on stronger-than-expected demand

Let’s return to energy. One interesting article appeared in wall street journal Last week, written by Björn Lomborg, author of False alarms: how climate change panic costs trillions of us, hurt the poor and fails to heal the planet. Lomborg believes that today’s rising energy prices are a “sign of things to come”, thanks to the climate policies of world governments. In particular, he targets unreasonable decarbonization efforts:

“There is a need to limit the use of fossil fuels to make them more expensive and to push people towards green alternatives that are more valuable and less efficient.”

In fact, I’m sure you’ve felt the pain at the pump over the past year, and families in Europe are grappling with all-time high energy prices.

You may think that coal use is declining rapidly, but believe it or not, coal-fired power generation reached an all-time high last year, Driven by the demand for cheap energy in China, India and other emerging economies. Because production hasn’t kept up with demand, it prompted coal prices to hit record highs in 2021, not to mention power generation, food and transportation, even as families living in those countries It is also less economical for those who have not completely eliminated fossil fuels.

Consider Germany. the coal was his primary source of electricity generation In 2021, a year in which wind power also saw a decline to its lowest level since 2018. And yet the country – now under the control of the Social Democrats, Free Democrats and Greens – is still on track to phase out coal by its end. decade.

As a result of renewed demand for fossil fuels, companies involved in oil and gas saw their stocks rise nearly 50% last year, outpacing renewable energy companies for the first time since 2016.

Explore the Periodic Table of Commodity Returns, updated for 2021 Click Here!

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