Commodities outperformed other assets in 2021 though gold loses its lustre, according to analysts.
The S&P Goldman Sachs (NYSE:GS) Commodity Index- a composite index of commodity sector returns- has surged 35% this year, trumping the U.S. equity index S&P 500 for the first time in a decade.
The S&P 500 has gained 23%, the dollar index (DXY) has climbed 7% while U.S. benchmark 10-year treasury bonds are lower by 3%.
In commodities, coffee has been a standout, rocketing 84%. The West Texas Intermediate (WTI) benchmark for US crude, the world’s most actively traded commodity, has surged 40%, copper has advanced 21% while gold has fallen, sliding 5% as investors became concerned about higher interest rates.
Meanwhile, U.S. exchange traded funds (ETFs) in commodities have seen net outflows of $5.5 billion this year after inflows of $41 billion in 2020, according to Morgan Stanley (NYSE:MS) data.
Looking ahead, commodities are expected to remain competitive with equities in 2022, as global growth extends its upward trek, analysts said.
“We like both equities and commodities and we have an overweight view for both in 2022. It’s hard to say which one will do better,” Koen Straetmans, senior multi-asset strategist with NN (NASDAQ:NNBR) Investment Partners in the Netherlands told Reuters.
Next year, China, the major commodity consumer on global markets, is due to see weaker growth, but Beijing is not going to let the crisis in the property sector explode, balancing it with moderate financial stimulus, analysts said.
At the same time, analysts see logistics disruptions easing in 2022, therefore global commodity demand should be robust as the industry catches up with restocking. However, this may be offset by more plentiful supply of many raw materials.
“There will also be a number of macro headwinds, which should limit further upside for the commodities complex,” ING analysts said in a note.
The World Bank’s Commodity Markets Outlook forecasts that energy prices—expected to average more than 80 percent higher in 2021 compared to last year—will remain at high levels in 2022 but will start to decline in the second half of the year as supply constraints ease. Non-energy prices, including agriculture and metals, are projected to decrease in 2022, following strong gains this year.
“The surge in energy prices poses significant near-term risks to global inflation and, if sustained, could also weigh on growth in energy-importing countries,” said Ayhan Kose, Chief Economist and Director of the World Bank’s Prospects Group, which produces the Outlook report. “The sharp rebound in commodity prices is turning out to be more pronounced than previously projected. Recent volatility in prices may complicate policy choices as countries recover from last year’s global recession.”