These are the four major sector ETFs in the commodities space: the iPath Dow Jones-UBS Industrial Metals Total Return ETN (JJM | D-85), the iPath Dow Jones-UBS Precious Metals Total Return ETN (JJP | C-83), the iPath Dow Jones-UBS Energy Total Return ETN (JJE | D) and the iPath Dow Jones-UBS Agriculture Total Return ETN (JJA | B-74). The only two sectors that are actually getting anything useful done this year are the industrial and precious metals. But really, the important point here is that commodities aren’t really a single asset class.
There’s no correlation between the awesome run-up agriculture had in the spring and the rather sad state of precious metals at the same time.
And really, why would there be? What does wheat have to do with silver?
So why do I think commodities—and specifically, gold—may be more interesting right now than they were over the last five years? Correlations.
One of the problems with gold and commodities in this long market cycle has been that they haven’t been particularly counter-correlated to equities. They’ve tended to go in the same direction—just a lot more slowly, and with greater drag from things like trading costs and contango.
But that’s changed. Take a look at the 30-day correlation of the broader commodities markets:
Correlations are consistently the lowest they’ve been in years, and have run negative for much of the year. And look at gold (proxied here by the SPDR Gold ETF (GLD | A-100):
Gold’s been counter-correlated to equities all year long. Every single day, all year long, the one-month look-back suggests gold is right where you want it, zigging when the market zags.
Does that mean it’s time to pile in? Of course not. But it does suggest that long-term asset allocation diversifiers who’ve been hanging on to gold or commodities may finally be doing so for the right reasons.
At the time the article was written, the author had a small, long-standing and maybe finally justified position in DBC. Contact Dave Nadig at [email protected].