- Commodity prices have broadly recovered from their early pandemic lows.
- Gold prices have fallen close to pre-COVID levels.
- Oil prices have risen back to pre-COVID levels.
Most commodities have ridden the wave of expectations for a positive resolution to the COVID-19 pandemic this year. A multi-year chart of the Bloomberg Commodity Index—which is based on the futures contracts of 23 commodities in 6 sectors— shows just how far many of these commodities fell in the pandemic's wake, and how much they have bounced back since the low point in mid-April 2020 (see Commodities have been hot since the April low chart).
Looking under the surface, individual commodities have had varying performances during the pandemic. Here's a look at what's been happening with gold, oil, and some other major commodities, plus what to possibly expect for each.
Has gold's shine dulled?
Few assets had seen their price rise as dramatically before the pandemic (as well as during the early stages) as gold. A multi-year chart of Nymex gold shows it jumped more than 60% from mid-2019 until August 2020—reaching an all-time high above $2,051 per troy ounce on August 6, 2020 (see Gold shines during early pandemic days chart). But since then, gold prices have fallen to pre-pandemic levels.
In the March 22 Daily Metals Recap from The Hightower Report, a mostly bearish short-term outlook is offered. "We remain skeptical of the bull case in gold… daily gold ETF outflows have been unrelenting since the second week of January, signaling lackluster investment demand. There are some reports that Asian demand for gold is starting to percolate, but so far, the market has not been presented with credible evidence that demand in India or China (the 2 largest consumers of the precious metal) is recovering." You can access these reports, and other metals market commentary, on Fidelity.com via the US Markets Performance section on the Markets & Sectors research page.
However, there are reasons to be bullish on gold and gold-related investments over the longer term. Steve Calhoun, manager of Fidelity® Select Gold Portfolio (FSAGX), notes that continued low interest rates and rising government debt could weaken the US dollar, potentially helping boost gold. Calhoun is also positive on gold producers, "based on record margins that are driving earnings and free-cash-flow generation."
Oil seeps back to $60
Impact of energy prices
Trends in the COVID-19 pandemic (e.g., infection rates and vaccine distributions) continue to be a primary driver of changes in economic activity and, consequently, oil and gas prices. The US Energy Information Administration (EIA) attributed rising prices in February and early March to continued expectations of rising oil demand, as both vaccination rates and global economic activity increased, combined with ongoing petroleum supply limitations by the Organization of the Petroleum Exporting Countries (OPEC) and partner countries (OPEC+). Additionally, disruptions to supplies from extreme weather (notably in Texas) and a ship running aground in the Suez Canal contributed to upward pressure on oil prices.
Even though oil has also returned to its pre-pandemic price range, black gold's path has been quite different than gold. Prior to the COVID-19 outbreak, Nymex crude oil had been relatively sticky around $60 per barrel. Then, economic activity grinding to a halt around the globe at the outset of the pandemic sent crude prices briefly crashing into negative territory for the first time ever (see Oil prices have rallied back toward $60 chart). After a rapid recovery in May 2020 to $40, oil prices have slowly crept back toward pre-pandemic prices around $60.
Will oil prices continue to seep higher, stall once again in this range, or potentially head lower?
In the Weekly Energy Market Outlook from The Hightower Report, it is noted that "demand news has failed to provide tangible evidence of demand recovery from inside the US and from India." This report adds that February crude imports by India (the third largest consumer of oil worldwide, behind the US and China) fell to the lowest level in 5 months, and that "Germany and France have returned to tighter stages of lockdown and demand readings from Europe were poor." According to Hightower, "If the market were not so short-term oversold, we would expect further declines with the $57.50 level becoming the likely zone for a key low." You can also access these reports, and other energy market commentary, on Fidelity.com via the US Markets Performance section on the Markets & Sectors research page.
If you have a positive view on the energy space over the longer term, there may be opportunities to consider. "Even after a roughly 35% rally for energy stocks in the last 2 months of 2020, I'm still seeing historic values in the sector, especially among the stocks of certain shale-related companies that aren't industry pure-plays," says Peter Belisle, portfolio manager of Fidelity® Select Natural Gas Portfolio (FSNGX). "Many stocks in the sector, especially exploration & production names, trade at a steep historical discount, based on my expectations for free cash flow in 2021 and 2022. I think diversified oil companies will have to navigate some longer-term challenges, but they stand out to me early in 2021, based on my view of risk versus reward," according to Belisle.
However, many oil stocks (and energy commodities) remain exposed to decarbonization trends that could weigh on their fundamentals longer term.
While gold and oil usually capture most of investors' attention among commodities, others play an important role across a range of industries. For example, soybeans are an important ingredient for many food manufacturers and restaurants. After a tumultuous several years in the crosshairs of US-China trade wars, soybeans are now trading at multi-year highs, climbing above $14 per bushel. Expectations for strengthening global demand for food stuffs in anticipation of a slowing COVID-19 pandemic have bolstered not only soybeans, but also wheat, corn, and oats—all of which are trading at multi-year highs.
While some US-China trade tensions have resurfaced, the primary trend in soybeans continues to be the global economic recovery from recession as well as what appears to be relatively strong global grain production. In the March 23 Daily Grain Market Commentary, The Hightower Report notes that soybean export inspections (which track soybean production) are particularly high. "Cumulative inspections year-to-date are 53,639,990 metric tonnes, which is 72.5% above last year. This is 87.6% of the USDA's forecast for the 2020-2021 market year, versus the 5-year average of 70.7%. It is not normal for inspections to be so far ahead of normal." Stronger production would exert downward pressure on soybean prices.
You can also access these reports, and other agriculture market commentary, on Fidelity.com via the US Markets Performance section on the Markets & Sectors research page.