Commodities Storm Back On To The Stage

Broadly speaking, commodities had an amazing bull run that ended several years, and they’ve been mostly out of favor ever since—though gold and oil never really stepped out of the spotlight and are hogging it even as we speak. The recent market turmoil, however, might have brought all commodities back into focus, or at least created a new appreciation for the category.

For example, even though oil’s price went negative for a day in April, causing a large number of investors to lose their shorts, the United States Oil Fund LP (USO) pulled in $3.7 billion in April for a year-to-date total of $6.5 billion. Speculators have essentially been betting that oil’s price can only go up from where it is now.

And gold prices are nearing all-time highs not seen since 2011, as other investors seek traditional safe spaces amid wildly swinging markets and an uncertain economic scenario.

But beyond oil bets and gold bugging, broadly speaking, it looks like it’s going to get worse for commodities before it gets better. After all, the economies of developed and many emerging markets around the world are largely shut down due to the virus, causing a prolonged disruption.

Travel is at a standstill. Health care systems are strained to their breaking points. And while food is still in demand, the supply chains are becoming derailed as many production facilities are closed, which could affect agricultural commodities.

It’s a bleak picture for a wide swath of the space. But could it be the reset that commodities have perhaps needed as an asset class?

Potential Commodities Revival
Think about it: Commodities, with the exception of certain precious metals, have been mostly out of favor for ages. But the coronavirus has wiped the slate clean in many ways, while highlighting to almost  everyone, including investors, just how ingrained the asset class is in their day-to-day lives and how disruptions in its markets can have global impacts.

Commodities underlie the world economy, and they’ll no doubt be in demand again once things are up and running. That could take some time, but ETFs are the perfect way to get in at the ground floor before that happens.

Industries that have staggered to a halt will have to throw extra effort into getting back off the ground, while industries that have merely slowed will likely see an uptick in demand as reopening brings consumers back to the workforce and gets postponed projects moving again.

And with so many people confined to their homes for so long, there’ll likely be a burst of consumption as social lives and leisure activities get back on track.

Jumping The Gun?
However, there’s one particularly big risk: If the world reopens too soon, many consumers will be reluctant to resume their old habits and practices. After all, if you’re worried for your own health or about infecting vulnerable loved ones, you’re not going to be dining out or planning a trip to the beach. And a new wave of infections and hospitalizations could send consumers scrambling back into their homes and send markets of all kinds back into tailspins.

In a world that’s slowly awakening from a virus-imposed economic slumber like no other before, priorities will likely be different going forward. Commodities may find themselves center stage both as a segment that’s been underappreciated in times of abundance—if not entirely taken for granted—and as an investment opportunity that’s been almost forgotten. And gold, well, it’ll continue to chug along as the safest of safe havens as it’s always done.