Brent crude oil, gold, copper and corn were among many areas of commodities that suffered double-digit losses in 2013 but a series of data and fund management commentary appears to be showing renewed support given the bombed out levels.
Data for January from Hargreaves Lansdown showed gold funds bounced back stronger than the underlying price of gold in the first month of the year. Among the top-10 funds in January, seven were gold funds.
The best performer was Junior Gold, which delivered nearly 21.9 per cent, although the fund’s longer-term performance shows that in five years it has produced a loss of 63.9 per cent, according to FE Analytics.
Richard Troue, head of
VCT research at Hargreaves Lansdown, said: “Shares in gold mining companies have staged a mini-resurgence following a torrid 2013 where the gold price and earnings fell as investor sentiment towards the sector was highly negative.
“It is too early to call a turnaround in the fortunes of these companies, but many have worked hard to reduce costs and changes in management at the top level have seen a greater focus on shareholder returns.
“In January, we saw gold mining companies recovering faster than the gold price. If companies can start to deliver earnings growth in 2014 and 2015 the share price recovery could continue.”
Elsewhere, ETF Securities’ Nitesh Shah said gold had outperformed equities in 2014 – a fact supported by investor flows into its gold exchange traded products which saw the largest inflows in five months.
“Gold has outperformed equities so far in 2014, which may provide further attraction for investors,” Mr Shah said.
“Meanwhile, another sharp dip in temperatures in the US caused energy storage drawdowns, which prompted price hikes across the sector.
“Industrial metals remained pressured as weaker-than-expected manufacturing surveys in China setback sentiment. However, while survey data has softened, actual economic activity remains robust and should provide a backstop for commodity prices.”
Invesco’s Scott Wolle, head of the group’s global asset allocation team, said 2014 could look like a challenging year for commodities but there were reasons to be positive. “On the surface, 2014 looks to be a tough year for commodities, as multi-year projects increase the flow of supplies to market even as demand has turned tepid, especially in emerging markets,” he said.
“However, a deeper look at the history of this asset class suggests that the outlook for commodities might turn around sooner than many expect.”
Mr Wolle said the excess returns provided by commodities over cash have historically had a high correspondence with global GDP growth.
“In short: when global GDP accelerates, commodities have tended to do well – in particular, the more cyclical commodities like oil and copper,” Mr Wolle said.
“Since the consensus view is that global GDP growth is poised to accelerate in 2014, this historical trend may bode well for commodities this year.”
The manager added that looking at historical bear markets in commodities could suggest “the worst is behind us”.
“There have been four commodities bear markets in modern times, starting in 1974, 1980, 1997 and 2008,” he said.
“Right now, the current bear is five-and-a-half years old, and prices are still only just over half of what prior peak levels were in 2008. This is nearly the worst experience for commodities in modern history. That’s not to say that prices can’t get worse from here, but to assume that the next few years will continue to be poor for commodities is pushing against market history.”
