Tough Day For Commodities

So far in 2022, sky-high commodity prices have plagued equity markets. As input prices have surged for corporations, consumers have faced record-high gas prices, and families are forced to spend A LOT more on food. This has led to a compression in discretionary budgets among consumers, record-low consumer confidence readings, and multi-decade lows in investor sentiment. Yesterday, commodity prices fell sharply as speculators feared demand destruction due to rising recessionary risks. Although the reasoning for the selloff is certainly not positive for the broader economy, investors breathed a sigh of relief as one of the major economic/market headwinds eased.  Click here to learn more about Bespoke’s premium stock market research service.

Yesterday’s move was the third-largest downside move in the Invesco DB Commodity Index ETF (DBC) since its inception in 2006, falling short of just two occurrences in March 2020 and March 2022. Following yesterday’s decline, DBC is now down over 18% from its June 9th high and up ‘just’ 20.2% YTD. Over the last 12 months, though, DBC is still up 73.6%.

Commodities Crash

Commodities Lower

Following the other nine worst days in DBC’s history, the median forward performance has been relatively weak, which by itself, is a positive for corporations and all other commodity consumers. In the next week, DBC has only performed positively one-third of the time, booking a median loss of 2.7 percentage points. Over the following three months, DBC has appreciated 56% of the time and has tended to remain flat on a median basis. In three of the nine prior occurrences, DBC rallied 18% or more over the next three months, while it declined 29% or more twice. Click here to learn more about Bespoke’s premium stock market research service.


Precious Metals Harden Up

Little has been safe from heavy selling pressures recently including assets normally considered “safe havens” like precious metals. Gold is currently down over 9% from its March high while silver is down roughly 20% since its spring high.  Today, both metals are bouncing from notable levels.  For gold, it is finding support at its 200-DMA which also coincides with the rough uptrend line of higher lows of the past year.  In addition to dramatic underperformance versus gold, silver’s test of support is perhaps a bit shakier. It is well below its moving averages, but today’s rebound is happening right around the lows from September and December.  Granted, on an intraday basis, both yesterday and today’s lows breached those levels.

Gold Futures

Given silver’s much larger decline, the ratio of gold to silver has ripped higher in the past month. In fact, the ratio has risen over 10% in the past month. The most recent 10% or larger surges were as recent as this past December with two even larger ones in the spring and fall of 2020.  Prior to the pandemic, though, these sorts of rapid increases in the gold to silver ratio have been rarer.  Before 2020, the only other instances of the past decade were in the springs of 2013 and 2017.   Click here to learn more about Bespoke’s premium stock market research service.

Gold and Silver Ratio

Metals Commodities