Commodities sector enjoying investment levels last seen in 2009

According to figures from Barclays, the commodities sector is currently enjoying investment inflows at a level not seen since 2009.

Mainly driven by an insatiable appetite for gold, overall demand for commodities this year is at the highest level since the days of the financial crisis, the figures have shown. Year-to-date total commodity investments sit at $50.8 billion, representing the strongest performance recorded between the months of January and July in seven years.

These hefty inflows of capital, coupled with major price rises, have ensured that the level of commodity assets under management now sit at $235 billion, which is a huge jump up from the $161 billion figure recorded at the tail end of last year. Gold has risen by 26 per cent, while silver has jumped by 43 per cent and oil prices are up 12 per cent, the bank confirmed.

Many are suggesting that this year will result in being positive net overall for net commodity investor flows, marking the first time this has been the case in four years. For the last few years, since 2013, commodity investment flows were negative, following the early investment boom in commodities in 2009.

However, despite these positive signs, some believe the sector has had its day, with last month's inflows looking set to be the high point. A team of Barclays analysts, led by Michael Cohen, suggested that outflows could well return over the course of this year, despite the sheer scale of buying looking set to ensure the sector remains positive overall.

Barclays analyst Kevin Norrish told the Financial Times: “Much of the investor demand this year been tactical and, unless the asset class continues to generate strong returns in the second half then outflows could resume."

One of the reasons given by Mr Cohen's team is that much of the investment injections are linked to concerns regarding the uncertainty left by Brexit, along with the demand seeming tactical overall. Indeed, single-commodity exchange-traded products have shown to be far more popular than indexes, especially in terms of oil and precious metals, with many active investors trading in and out.

The team also referenced the Bloomberg Commodity Index, which revealed flat returns for the first quarter of this year, followed by a 14 per cent gain in the second three months of the year and an 8.4 per cent drop in the third quarter to date.

Mr Cohen and his team told Marketwatch: "One worrying pattern for commodity investors that is relevant here is the tendency for commodity prices and investments to perform fairly well in [the first half of the year] but then to collapse [in the second].”

Crude oil was tipped to enjoy a recovery in the final three months of this year, said the team, following a slightly lower performance for commodities as a whole in the second half of this year.

“[There has been] a loss of enthusiasm for being on the long-side of commodity investments” among many asset managers, said Barclays. “[Some] tend to move a little faster than those investing in indexes, [exchange-traded products] or structured products.”

“It is perhaps telling that those net long positions have already started contracting quite rapidly both in overall terms and as a share of the market,” added the Barclays team.

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