This year has been disappointing for commodities, but some of 2018’s laggards, like gold, copper, corn, and soybeans, may be 2019’s leaders. In one case, a leader from 2018 could become a laggard in the new year.
“With political issues such as Brexit and the ongoing trade dispute between the U.S. and China, there are now a number of new opportunities that have opened up for 2019 for investors to turn to,” said Mihir Kapadia, chief executive officer of Sun Global Investments.
Among them is gold, which has underperformed in the last few years and fell by roughly 5% in 2018 as of Friday. One of the main culprits was rising interest rates. Higher rates make interest-bearing instruments more attractive relative to gold and increases the cost of storage.
A pause in rate increases, or possibly a decline in rates “could take some pressure off commodities in general, as they trade in U.S. dollars,” said Colin Cieszynski, chief market strategist at SIA Wealth Management. “Gold has already been picking up, but so have grains like wheat and corn.” Year to date, wheat futures, have climbed by 24%, while corn, has risen by nearly 10%.
“Corn could be the star performer among the major grains in 2019, due primarily to improving fundamentals, with global corn use rising almost twice as fast as production, and global inventories of corn projected to decline 9.2% from last year,” said Sal Gilbertie, president and chief investment officer at Teucrium Trading.
In contrast, wheat will have a hard time repeating 2018’s strong gains. “In 2018, wheat has been an outlier in the grains sector, as weather-related factors have led prices higher,” said Ed Egilinsky, managing director and head of alternative investments at Direxion. The surge in wheat prices this year has led to an increase in planting and “could lead to a supply overhang in 2019.”
The outlook for soybeans, meanwhile, has improved. Prices have lost more than 6% this year because of the trade dispute between the U.S. and China. Following news of a truce between the nations, China has reportedly been “buying soybeans of U.S. origin, which could spark a quick rally … if confirmed,” said Gilbertie.
Similarly, copper prices, slid on concerns the trade dispute would weaken demand for the metal. Copper now looks to be among the “most promising” commodities in 2019, said Egilinsky. “A resolution of trade issues, combined with the reemergence of emerging markets can translate into a strong year” for the metal.
Natural gas, however, may experience a reversal of fortune following a nearly 30% gain this year. A spectacular run up in prices for the fuel may lead to its downfall in 2019. Cieszynski points out that its price has spiked even as other energy commodities, like oil, were falling. Natural-gas futures nearly doubled—from their lowest to highest levels this year.
“Once winter is over…we could see a common seasonal pullback in natural gas,” and “the higher prices seen lately may encourage more capital spending, which could help rebuild stockpiles heading into next winter,” said Cieszynski.
Analysts generally paint a mixed picture for commodities next year, with some uncertainties from 2018, such as the trade dispute and the duration of Fed rate hikes, continuing to hang over the market as it enters 2019.
“Investors should put risk management above all,” and “invest with the [trading] trend as opposed to bottom-fishing or swimming upstream,” said Adam Koos, president of Libertas Wealth Management Group. “We have so many inflection points, and much of the resolution is going to result from action taken by Trump, China, [Fed Chair] Powell, and what the [U.S. dollar] does from here.”
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