The S&P Goldman Sachs Commodity Index (GSCI) gained 2.2% in May and has risen for the past three months in a row, for the first time since 2014. Perhaps it’s no coincidence that stocks have been locked into a broad trading range since 2014 also.
On a year-to-date basis, the GSCI is beating stocks, and most other asset classes, by a very wide margin. Commodities are up 9.8% since Jan. 1; that’s three-times more than the S&P 500 gain of just 3.3%! And commodities are miles ahead of bond market returns so far this year.
This is a rare feat, as you can see in the chart below, commodities are outperforming stocks year-to-date for the very first time since 2007!
And if commodities maintain their early lead through the end of 2016, it will be the first time in the past eight years that commodity returns beat the stock market. Impressive.
However, if you drill a bit deeper, you’ll find that it hasn’t been a uniform advance for all commodities.
Energy is up 30.4% over the past three months alone, and that sector is driving GSCI performance, because the index has nearly a 70% weighting in energy.
Agricultural commodities and livestock also contributed to index positive returns last month.
Meanwhile, industrial metals (copper, aluminum, etc.) slumped 7.1% during the month of May, while precious metals (gold, silver) lost 6.3% last month, after big gains earlier this year.
Could the recent pullback in gold be a great buying opportunity for gold stocks?
Based on historical seasonal patterns, the start of summer often leads to short-term weakness for gold, as shown in the chart below courtesy of U.S. Global Investors and Moore Research.
The pattern over the past 30 years has been for gold to experience some weakness between May and August, often bottoming in June or July.
But after that, it’s off to the races, with gold prices typically surging higher into the fall.
That’s why this could be the setup for one heck of a buying opportunity, especially for gold stocks.
Look, gold had its best start to a year in 30 years, before correcting last month. Gold mining stocks performed even better early this year.
Typically, a 1% upside move in gold prices translates into leveraged upside gains of 2-3% for mining shares.
Sure enough, while the SPDR Gold ETF (GLD), which tracks gold prices, gained 22.2% from January to the high in May, the Market Vectors Gold Miners ETF (GDX) soared 90.7% higher over the same period.
With gold prices now taking a seasonal pause in performance, mining shares have corrected sharply as well. But if seasonal patterns hold, you can expect the buying opportunity of a lifetime for gold and silver stocks sometime in June or July.
Global airlines said they expect to agree by the end of the year on the best way to ensure faster recovery of data from the flight black boxes to aid in investigation of airline crashes, such as the disappearance of EgyptAir MS804, Reuters reports. The recorders from that flight are still being sought after it crashed two weeks ago into the Mediterranean, with the loss of all 66 people on board. The problem of tracking lost aircraft was highlighted by disappearance of Malaysia Airlines MH370 two years ago. The U.N. aviation agency ICAO said in March that new aircraft needed to be equipped with improved means to have their black boxes recovered by 2021.
Gilberto Lopez Meyer of the International Air Transport Association (IATA) was quoted by Reuters as saying that the organization would by the end of the year set out its view on which of various possible techniques would be best. Some options: Black boxes could stream their data live or be fitted with an automatic deployable flight recorder to make them quicker to find. The downsides: A data-streaming system would create massive amounts of data for all aircraft, and a beacon system could deploy accidentally, officials have said.
As it moves to reinforce its presence in Eastern Europe, NATO Secretary General Jens Stoltenberg said the military alliance is not seeking confrontation with Russia. “We are strengthening our collective defense not to provoke a conflict but to prevent a conflict,” Stoltenberg told a news conference.
He added that “we are not in a new Cold War.” Stoltenberg announced that NATO would station four battalions in Poland, Lithuania, Latvia and Estonia on a rotating basis – all countries that used to be part of the USSR or under the Soviet sphere of influence.
A fed proposal Thursday could require lenders who offer payday loans and other small-dollar advances to assess whether borrowers could afford to repay the debts. The move is designed to protect consumers from predatory lending practices that the top regulator calls “debt traps.”
“The way these products are structured, it’s very difficult to repay the loan and therefore people end up borrowing again and again and paying far more in fees and interest than they borrowed in the first place,” Richard Cordray, the director of the Consumer Financial Protection Bureau, was quoted by NPR as saying.
The chief of the European Central Bank said the central bank’s stimulus measures are helping the economy of the eurozone and urged everyone to give them time to work before any new monetary measures are taken. The ECB left its stimulus programs unchanged Thursday. President Mario Draghi stressed that the focus now is on implementing measures already agreed to earlier this year and that those moves will provide stimulus to the economy once their effects take hold.
ECB economists slightly raised their inflation forecast for this year, while leaving projections for next year and 2018 unchanged, which some took as an indication that further stimulus measures may be needed.
The Money and Markets team