The mixed market signals present a confusing narrative for investors trying to identify the peak of inflation. With the recent drops in crude prices and the fall in industrial metals like copper and aluminum, many are looking to commodities for better insight into the macro picture.
Commodity prices have fallen this year amid rising interest rates, with the Invesco DB Base Metals Fund (DBB) hitting a 52-week low on Tuesday.
“If you look at all the major commodity prices around the world, all of them are now back or below where they were. [in late February] when Russia invaded Ukraine,” Will Rhind, CEO of GraniteShares, told Seema Mody in an interview on CNBC’s “ETF Edge” on Wednesday. Iron ore is the one major exception.
But Rhind noted that the larger trend started in 2020 when oil and the rest of the commodity complex bottomed out with the market.
“If you look at GraniteShares Bloomberg Commodity Broad Strategy No K-1 ETF (COMB), we’re still up 10% year-to-date,” he said. “But I think a lot of that premium that we’ve seen, especially on Russia and Ukraine, is now out of the market.”
While dividend and ultra-short-term bond ETFs dominated net inflows, Todd Rosenbluth, head of research at VettaFi, said commodity ETFs were a nice surprise for the first half of 2022, gathering $15 billion.
“We’ve seen demand for precious metal ETFs like GLD and IAU,” Rosenbluth said in an interview on CNBC’s “ETF Edge” on Wednesday. “We have also seen, perhaps greater demand, for the more broadly diversified suite of commodity ETFs.”
Rosenbluth pointed to Invesco’s PDBC, which is exposed not only to precious metals but also to different sectors like agriculture and energy.
“We’re seeing advisors want this diversification,” he said. “They like gold, but they also want exposure to these other bond sectors.”
Gold has lost more than $300 an ounce since the Federal Reserve began raising interest rates in March, hitting a nine-month low on Wednesday. Meanwhile, the dollar proved to be a safe haven for investors, hitting a nearly two-decade high on the same day.
“It’s an environment where we have a very strong dollar, but historically gold prices have reacted negatively,” Rhind said.
Despite the unfavorable relationship, Rhind explained that gold still managed to maintain its appeal given the pressures on the dollar in a rising interest rate environment.
“If rates start falling or at least destabilizing from these levels and we see some dollar weakness, I think gold is well positioned,” he said.