Advisers and their clients would be wise to capitalise on a “short-lived” downward correction in commodity prices, researchers at exchange-traded product provider ETF Securities have suggested.
In a 10-page report, ETF Securities Commodity ETP Weekly: Commodities back in favour as recent correction deemed excessive, Simona Gambarini, associate director for research, and Nicholas Brooks, head of research and investment strategy, stated: “While most commodity prices continued to lose ground last week, investors started to realise that prices cannot fall much further, prompting inflows into precious metals, West Texas Intermediate crude and agriculture.
“With most commodities trading at or below their marginal cost of production, we expect the recent downward correction in commodity prices to be short-lived and believe commodities are attractively valued at current levels.”
| Commodity | Flows in the week to 16 October |
| Gold | US$12.8m |
| Silver | US$9m |
| Platinum | US$3.4m |
| Palladium | -US$10.7m |
Source: ETF Securities
The report, which uses data running to 16 October, found that, in one week, precious metals had been “back in favour”, with £13m of inflows.
The authors said: “With the exception of palladium, all precious metals received inflows reversing the negative trend seen over the past few weeks.
“With platinum trading 10 per cent below its marginal cost of production and gold and silver fast approaching their break even levels, we believe those commodities are attractively valued.”
They added that gold could benefit from “increasing uncertainty in currency and equity markets” and that industrial demand for silver could rise.
The report also found that long WTI crude oil exchange-traded products had their biggest inflows, at US$20m (£12m), since April 2014 as the price fell below US$80 for the first time since June 2012.
The authors also found that coffee had been impressive, saying: “Arabica coffee has been the best-performing commodity this year, with a 96 per cent gain over the period.”
They noted that there was “negative sentiment towards copper”, but this price weakness “will be short-lived as investors return to focus on fundamentals”.
Adviser view
Mike Horseman, managing director of Nottinghamshire-based Cockburn Lucas Independent Financial Consulting, said: “If we were building a portfolio ourselves we would consider commodities as a potential place to allocate assets. But broadly speaking, we have been really disappointed with them in the past.”
