Commodities are on the mend. That much is confirmed by the year-to-date performance of the PowerShares DB Com Indx Trckng Fund(ETF) (DBC) and other diversified exchange-traded products. DBC is up 15.3 percent this year.
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Some individual commodities, namely energy and precious metals fare, have easily surpassed broader commodities benchmarks this year. For example, the United States Brent Oil Fund, LP (BNO), which tracks Brent crude futures, is up 24.7 percent this year. Gold is another commodities leader as highlighted by the SPDR Gold Trust (ETF) (GLD), which is higher by 21.4 percent.
If commodities seasonality holds true to form, gold and oil ETFs could have more upside during the third quarter.
For seven commodities, the 3rd quarter has historically been the best quarter but the 3rd quarter has been the worst for six commodities. Also, the 3rd quarter has been the best for both energy and precious metals with respect to their own histories, according to S&P Dow Jones Indices.
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Crude oil futures, which can be accessed via the United States Oil Fund LP (ETF)(USO), among other exchange-traded products, average a third-quarter gain of 7.2 percent, according to S&P Dow Jones Indices data. However, investors should be careful when thinking that same favorable seasonality extends to natural gas and the United States Natural Gas Fund, LP (UNG). That commodity is one of the worst performers in the third quarter.
Throwing Interest Rates Into The Conversation
Bolstering the near time case for gold, GLD and rival gold ETFs have regained investors' favor this year, including still low interest rates in the United States and lower or even negative rates throughout the developed world. While not the garden variety interest rate policy, negative interest rate policies (NIRP) are having a profound, mostly positive effect on gold.
Although it appears unlikely the Federal Reserve will raise interest rates this month and the same can probably be said of July, the Fed is intent on boosting borrowing costs. Even it does, U.S. interest rates will still be nowhere to close to historical norms, indicating any punishment delivered to gold ETFs in the wake of rate hikes could be short-lived. Additionally, it looks like NIRP will remain throughout much of the developed world.
Despite, a record hot second quarter, commodities may continue on their streak into the summer given the 3rd quarter is historically the best one for the asset class. On average since 1970, the S&P GSCI TR has gained 4.3 percent in Q3 that is more than the average historical returns of 2.8 percent, 3.0 percent and -0.7 percent in Q1, Q2 and Q4, respectively, added S&P Dow Jones Indices.
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