The commodities sector has emerged as one of the best-performing asset classes this year, and as the first quarter moves to a close, and a 2 April tariff announcement from the Trump administration looms, it looks set to deliver more to savvy investors.
The Bloomberg Commodities Index, which is tracked by several major Exchange Traded Funds, has traded up 12.2% in the past 12 months, with the bulk of that gain being achieved within the last three months. The year-to-date return shows a 7.9% gain, well above the return seen on some of the major equity market indices.
On a sector level, precious and industrial metals stand out, having delivered returns this quarter of 15.2% and 12.5%, respectively, while the 12-month performance is even more impressive at 37.6% and 18.1%. This has been driven by continued haven demand for gold and silver amid ongoing demand from investors seeking protection in tangible assets against geopolitical and economic uncertainties, as well as central bank purchases of gold to reduce their dependency on fiat currencies, especially the USD.
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The energy sector has mostly been a story about natural gas strength, with a total return so far this year of around 25.5%, while crude oil and fuel products have struggled amid a tug-of-war between economic growth concerns impacting demand and the increased threat of sanctions potentially reducing supply from Iran and Venezuela. This has, in turn, offset a planned OPEC+ production increase from next month.
Brokers in the CFD sector in London who The Armchair Trader spoke to last week have said that crude oil has been relatively rangebound really since September; while OPEC+ countries have sought to balance oil prices, this has been offset by the anticipated decline in demand from a slowing Chinese economy.
Ole Hansen, Head of Commodity Strategy, Saxo, said:
“Looking at the performances and individual weights, we find that gold, copper, and natural gas have delivered close to 75% of the total return, despite the three contracts only carrying a total index weight of 27.5%. This highlights the advantage of holding broad exposure to commodities instead of trying to pick individual winners.”
Trump is making gold and silver a winning bet
Gold has surged to a record high near $3,120/oz this morning (Monday), driven by market jitters over potential Trump-era tariff reinstatements and anticipation around the PCE inflation data. Last week buillion analysts were calling $3100 a significant level for gold to cross, as this means the price above $3000 now looks sustainable over the longer term.
Traders are also focused on warnings coming from the Trump administration about its so-called Liberation Day announcement. This is likely to be a sweeping new global tariffs plan, which marks a major escalation in Trump’s protectionist agenda. Rather than targeting a select group of nations with the largest trade imbalances, this move will hit almost all major trading partners.
Markets are already reacting. US equity futures are lower, European stocks have dropped, gold is at record highs, and Treasury yields are falling. Risk aversion is spreading as investors digest the scale of disruption a globally applied tariff regime could bring.
There’s renewed urgency around portfolio diversification which is also supporting the shift into precious metals. Assets that perform well in uncertain or decelerating environments, incluing longer-dated sovereign bonds, quality dividend stocks, infrastructure, and gold, should be gaining weight in allocations, according to wealth managers we spoke to at the end of last week. Exposure to export-heavy cyclical sectors, particularly in Europe and Asia, now carries increased downside.
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