Commodities finished nearly flat for the month as President Donald Trump helped jostle prices.
Commodities have generally gained since Donald Trump was elected president of the United States back in November, as his plans for infrastructure spending fueled a rally in industrial commodities such lead, palladium and copper.
Prices for those commodities saw sharp gains this month, but crude oil and other energy commodities suffered on the back of Trump’s promise to ease restrictions on drilling, which could lead to higher supplies in an already glutted market.
“The mixed price action between broadly higher metals and largely underwhelming performance of the energy complex has caused commodity indexes to end the month near the flat mark,” said Tyler Richey, co-editor of The 7:00’s Report.
The Bloomberg Commodity Index BCOM, +0.65% which tracks 22 commodity futures contracts, was trading less than 0.1% higher for the month, as of Tuesday afternoon. It was barely on track to score a third straight monthly gain.
Individual commodity returns for the month of January 2017
“It’s difficult to attribute any commodity performance to Trump yet, since he only took office on Jan. 20, but it looks like oil fundamentals are holding based on production while aggregate demand hopes are driving industrials,” Jodie Gunzberg, global head of commodities and real assets at S&P Dow Jones Indices, told MarketWatch.
Among the biggest commodity gainers for the month of January, futures prices for lead saw the largest percentage gain, up over 14%, according to data from FactSet.
Lead typically climbs “most from a weaker dollar — gaining on average over 7% for every 1% the dollar falls,” said Gunzberg.
She pointed out that the S&P GSCI Lead index DJCIIL, +1.25% gained more than 16% in January to post its best month since July 2010.
S&P GSCI Lead total return
Futures prices for platinum PLJ7, +0.28% and palladium PAH7, +0.02% each also added roughly more than 10%, and copper HGH7, +0.15% climbed nearly 9%, according to FactSet data Tuesday. Gold futures GCJ7, +0.12% added over 5% to log its biggest monthly gain since June, while silver tacked on almost 10% for its first monthly rise since September.
“The political backdrop remains bullish for industrial commodities — and to a lesser extent energy, but only because the focus there remains mostly on the global production deal,” said Richey. An agreement between members of the Organization of the Petroleum Exporting Countries and other major producers to cut a collective 2% of the global crude supply kicked in at the start of the year.
“Precious metals, specifically gold, are trading with a high correlation to the dollar DXY, -0.82% and the rest of the ‘Trump trade,’” he said. The ICE U.S. Dollar index, a measure of the buck against six currencies, was about 2.6% lower for the month. A weaker dollar makes gold, which is traded in the greenback, cheaper for buyers using other currencies.
“If money flows return to ‘Trump-on,’ then we are likely to see a steep correction in gold, at least without a substantial and unexpected uptick in the pace of inflation,” Richey said.
For industrial commodities, “an uptick in economic activity paired with infrastructure spending is bullish,” he said. It’s also bullish when it comes to “demand for energy [and] petroleum products, which should continue to support those two components of the commodities space as we move further into 2017.”
‘The toughest part about determining the direction toward which oil will move comes down to Trump’s unpredictable actions.’
Adam Koos, president of Libertas Wealth Management Group, said “the toughest part about determining the direction toward which oil will move comes down to Trump’s unpredictable actions.”
“If the POTUS decides to start ‘unleashing the power of American energy,’ this could mean more drilling, which means more supply, which means lower prices,” he said. And that could “also mean OPEC pulling the ripcord on all productivity deals due primarily to the uncertainty of such large regulation changes.”