Gold Drives Commodities Amid Energy Challenges
October 14, 2024
Read Time 3 MIN
Mixed Performance in Q3: Precious Metals Shine While Energy Declines
Commodity index returns were mixed in the third quarter. The energy sector declined sharply due to concerns over slowing global growth and potential oversupply from OPEC’s (Organization of the Petroleum Exporting Countries) spare capacity. The precious metals sector, led by gold, was the strongest performer during the quarter. The UBS Constant Maturity Commodity Index (CMCITR) underperformed the Bloomberg Commodity Index (BCOM), which has a significantly larger exposure to gold and silver.
In the third quarter, CMCITR’s performance declined by approximately 0.86%, while BCOM rose by 0.68%. Despite this CMCITR still outperformed BCOM year-to-date by about 0.39% (6.25% versus 5.86%).
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Sector Review: Gold’s Gain Spearheaded Positive Returns
The energy sector overall declined by 10%, with both WTI Crude Oil and Brent Crude Oil also falling by about 10%. The gains seen in the energy sector during the first half of the year were essentially reversed in the third quarter due to slowed economic growth in China and the European Union (EU). WTI Crude Oil traded in a range from $65 to $80, ending the quarter near the year's lows. OPEC is expected to modestly increase output in December. The ongoing war in the Middle East should continue to support prices, keeping crude within a trading range.
The precious metals sector was the top performer this past quarter, climbing approximately 12%. Gold spearheaded the gains with a 13% rise, while silver increased by 6%. Year-to-date, gold has surged 30%, outpacing all other commodity sectors. This surge is driven by investor demand for gold as a safe-haven asset amidst two wars (Middle East and Russia-Ukraine) and the U.S. election. BCOM has a 20% allocation to the precious metals sector, compared to CMCI's almost 7% allocation.
The agriculture sector gained about 3%. Additionally, coffee, cocoa and sugar led the sector higher and have been the strongest agricultural commodities all year. CMCITR has exposure to cocoa, whereas and BCOM does not. This difference in exposure has given CMCITR an advantage over BCOM.
The industrial metals sector rose approximately 2.5% in the quarter, with zinc and copper increasing by 5% and 3%, respectively. The outlook for copper improved early in the fourth quarter after China announced aggressive economic stimulus policies. CMCITR has a 25% exposure to the sector, compared to BCOM's 16% exposure. This could benefit CMCITR over BCOM in the fourth quarter.
The livestock sector rose approximately 3.5% in the quarter, with both cattle and hogs experiencing modest rallies.
Comparative Index Sector Weights
CMCITR’s higher weighting to Industrial Metals and Agriculture sectors helped offset negative performance in Q3 2024.
Source: VanEck, Bloomberg. Data as of September 2024.
Outlook: Opportunities in Metals and Agriculture
While the energy sector faces challenges from global economic conditions and potential oversupply, precious metals and industrial metals offer avenues for growth backed by geopolitical and economic developments. The agriculture sector is expected to remain robust, while the livestock sector is likely to see stable growth. Overall, we expect commodities to continue to perform positively during the fourth quarter.
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Disclosures
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.
The UBS Bloomberg Constant Maturity Commodity Index (CMCITR) is a total return rules-based composite benchmark index diversified across 29 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agricultural and livestock.
Bloomberg Commodity Index (BCOM) provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.
UBS AG AND ITS AFFILIATES (“UBS”) DO NOT SPONSOR, ENDORSE, SELL, OR PROMOTE CM COMMODITY INDEX FUND (THE “PRODUCT”). A DECISION TO INVEST IN THE PRODUCT SHOULD NOT BE MADE IN RELIANCE ON ANY OF THE STATEMENTS SET FORTH IN THIS WEBSITE. PROSPECTIVE INVESTORS ARE ADVISED TO MAKE AN INVESTMENT IN THE PRODUCT ONLY AFTER CAREFULLY CONSIDERING THE RISKS ASSOCIATED WITH INVESTING IN THE PRODUCT, AS DETAILED IN THE PROSPECTUS THAT IS PREPARED BY OR ON BEHALF OF VANECK (“LICENSEE”), THE ISSUER OF THE PRODUCT. UBS HAS LICENSED CERTAIN UBS MARKS AND OTHER DATA TO LICENSEE FOR USE IN CONNECTION WITH THE PRODUCT AND THE BRANDING OF THE PRODUCT, BUT UBS IS NOT INVOLVED IN THE CALCULATION OF THE PRODUCT, THE CONSTRUCTION OF THE PRODUCT’S METHODOLOGY OR THE CREATION OF THE PRODUCT, NOR IS UBS INVOLVED IN THE SALE OR OFFERING OF THE PRODUCT, AND UBS DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PRODUCT AND DISCLAIMS ANY LIABILITY FOR ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF THE DATA.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
VanEck CM Commodity Index Fund: You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. Derivatives use leverage, which may exaggerate a loss. An investment in the Fund may be subject to risks which include, but are not limited to, risks related to agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, commodity index-related concentration, commodity index tracking, credit, debt securities, derivatives counterparty, derivatives, energy commodity sector, gap, interest rate, market, metals commodity sector, investments in money market funds, operational, passive management, regulatory, repurchase agreements, subsidiary investment, tax (with respect to investments in the Subsidiary), and U.S. Treasury securities risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.
VanEck CMCI Commodity Strategy ETF: An investment in the Fund may be subject to risks which include, among others, risks related to investing in the agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, derivatives counterparty, energy commodity sector, metals commodity sector, U.S. treasury bills, Subsidiary investment, commodity regulatory and tax risks with respect to investments in the Subsidiary, gap, cash transactions, credit, debt securities, interest rate, derivatives, commodity index tracking, repurchase agreements, regulatory, market, operational, authorized participant concentration, no guarantee of active trading market, trading issues, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, commodity index-related concentration, and passive management risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities. The level of derivatives counterparty risk may be heightened due to the Fund currently only having a single counterparty available with which to enter into swap contracts on the Index.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2024 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.
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Disclosures
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third-party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
All indices are unmanaged and include the reinvestment of all dividends, but do not reflect the payment of transaction costs, advisory fees or expenses that are associated with an investment in the Fund. An index’s performance is not illustrative of the Fund’s performance. Indices are not securities in which investments can be made. Past performance is no guarantee of future results.
The UBS Bloomberg Constant Maturity Commodity Index (CMCITR) is a total return rules-based composite benchmark index diversified across 29 commodity components from within five sectors, specifically energy, precious metals, industrial metals, agricultural and livestock.
Bloomberg Commodity Index (BCOM) provides broad-based exposure to commodities, and no single commodity or commodity sector dominates the index. Rather than being driven by micro-economic events affecting one commodity market or sector, the diversified commodity exposure of BCOM potentially reduces volatility in comparison with non-diversified commodity investments.
UBS AG AND ITS AFFILIATES (“UBS”) DO NOT SPONSOR, ENDORSE, SELL, OR PROMOTE CM COMMODITY INDEX FUND (THE “PRODUCT”). A DECISION TO INVEST IN THE PRODUCT SHOULD NOT BE MADE IN RELIANCE ON ANY OF THE STATEMENTS SET FORTH IN THIS WEBSITE. PROSPECTIVE INVESTORS ARE ADVISED TO MAKE AN INVESTMENT IN THE PRODUCT ONLY AFTER CAREFULLY CONSIDERING THE RISKS ASSOCIATED WITH INVESTING IN THE PRODUCT, AS DETAILED IN THE PROSPECTUS THAT IS PREPARED BY OR ON BEHALF OF VANECK (“LICENSEE”), THE ISSUER OF THE PRODUCT. UBS HAS LICENSED CERTAIN UBS MARKS AND OTHER DATA TO LICENSEE FOR USE IN CONNECTION WITH THE PRODUCT AND THE BRANDING OF THE PRODUCT, BUT UBS IS NOT INVOLVED IN THE CALCULATION OF THE PRODUCT, THE CONSTRUCTION OF THE PRODUCT’S METHODOLOGY OR THE CREATION OF THE PRODUCT, NOR IS UBS INVOLVED IN THE SALE OR OFFERING OF THE PRODUCT, AND UBS DOES NOT MAKE ANY REPRESENTATIONS OR WARRANTIES WITH RESPECT TO THE PRODUCT AND DISCLAIMS ANY LIABILITY FOR ANY INACCURACY, ERROR OR DELAY IN, OR OMISSION OF THE DATA.
Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.
VanEck CM Commodity Index Fund: You can lose money by investing in the Fund. Any investment in the Fund should be part of an overall investment program, not a complete program. Commodities and commodity-linked derivatives may be affected by overall market movements and other factors that affect the value of a particular industry or commodity, such as weather, disease, embargoes or political or regulatory developments. Derivatives use leverage, which may exaggerate a loss. An investment in the Fund may be subject to risks which include, but are not limited to, risks related to agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, commodity index-related concentration, commodity index tracking, credit, debt securities, derivatives counterparty, derivatives, energy commodity sector, gap, interest rate, market, metals commodity sector, investments in money market funds, operational, passive management, regulatory, repurchase agreements, subsidiary investment, tax (with respect to investments in the Subsidiary), and U.S. Treasury securities risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Gains and losses from speculative positions in derivatives may be much greater than the derivative’s cost. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities.
VanEck CMCI Commodity Strategy ETF: An investment in the Fund may be subject to risks which include, among others, risks related to investing in the agricultural commodity sector, commodities and commodity-linked instruments, commodities and commodity-linked instruments tax, derivatives counterparty, energy commodity sector, metals commodity sector, U.S. treasury bills, Subsidiary investment, commodity regulatory and tax risks with respect to investments in the Subsidiary, gap, cash transactions, credit, debt securities, interest rate, derivatives, commodity index tracking, repurchase agreements, regulatory, market, operational, authorized participant concentration, no guarantee of active trading market, trading issues, fund shares trading, premium/discount and liquidity of fund shares, non-diversified, commodity index-related concentration, and passive management risks, all of which may adversely affect the Fund. The use of commodity-linked derivatives such as swaps, commodity-linked structured notes and futures entails substantial risks, including risk of loss of a significant portion of their principal value, lack of a secondary market, increased volatility, correlation, liquidity, interest-rate, valuation and tax risks. Investment in commodity markets may not be suitable for all investors. The Fund’s investment in commodity-linked derivative instruments may subject the Fund to greater volatility than investment in traditional securities. The level of derivatives counterparty risk may be heightened due to the Fund currently only having a single counterparty available with which to enter into swap contracts on the Index.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. To obtain a prospectus and summary prospectus, which contain this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© 2024 Van Eck Securities Corporation, Distributor, a wholly-owned subsidiary of Van Eck Associates Corporation.