Commodity Update for Q3 2016

Last update, we triumphantly proclaimed that commodities were “back”.

However, we did forget to add one important caveat, which is that they could still get hit hard in the short-term by the classic “Sell in May and Go Away” market sentiment.

In Q3, commodities as a whole entered a “summer slump”, returning -5.7% as measured by the GSCI (Goldman Sachs Commodity Index). Performance was dragged down mostly by agricultural goods such as wheat, corn, and soybeans, but also by uranium which had another poor quarter.

Despite this bump in the road, most commodities are still having big years on a YTD basis:

• Silver, crude oil, and zinc are all up over 30% on the year.
• Gold, palladium, natural gas, and nickel are all up over 20%
• Uranium is the only metal in red, down over -30%

Here’s Q3 and YTD performance for each commodity:

There’s no doubt that Q4 will be another interesting quarter for the sector.

In November, the U.S. election will take place, and pundits are warning that a certain result would cause extreme market volatility. At the same time, some experts think that this unpredictability could fuel a mega-rally in gold and other precious metals. We think both of these things are possibilities.

Meanwhile, the recent tentative OPEC deal has brought crude oil to four-month highs. However, markets are skeptical that the deal is for real, and the general sentiment seems to be that a production freeze may fail to materialize as all parties try to finalize the deal.

What are your predictions for commodities over the next three months?