This has been a roller coaster year. From record-breaking unemployment numbers to an early stock market dive and the spread of the coronavirus, 2020 has highlighted what most investors have known all along: timing the market is very difficult.
This article provides a general overview of how COVID-19 has impacted the markets and specifically, which commodities are the biggest winners year-to-date.
The coronavirus had a strong impact on supply chains. For example, mines were locked down for weeks and the virus reduced staffing at processing plants for various commodities like orange juice and meat. Transportation snarls also ensued.
Likewise, a “second-wave” of the virus is leading to repeat lockdowns in some regions.
Energy commodities were among the hardest hit with crude oil down 32% year-to-date (YTD) and gasoline down 25%. The S&P 500 Energy is down 38% year-to-date.
Like energy, most agricultural commodities were hit hard at the start of the pandemic but have partially rebounded since then. Some, like corn, never really recovered.
The damage caused by the pandemic is not as bad as many investors might have expected. Despite the ups and downs, there have been several winners in the commodities market. Here’s a look at a few of the winners and what might have impacted their prices.
Gold is up 28% year-to-date with futures reaching an all-time high of $2,000 an ounce on July 27. This same week Bloomberg reported that the U.S. Mint is reducing its supply of gold and silver Eagles to retailers. (Eagle coins are one of the most popular forms of gold and silver bullion.)
Gold is traditionally seen as a safe haven asset in times of uncertainty and market volatility. This safe-haven status has been amplified by the trillions in government spending occurring in the wake of the coronavirus.
This move into gold is noticeable from the type of headlines that gold is getting.
Not everyone is in the gold camp. Notable Warren Buffet has been critical of gold as an investment, but he has invested millions in silver.
For most of this year gold has outperformed all other major commodities. But that recently changed with silver’s dramatic surge.
Silver has come out from behind, moving from a negative YTD price to being up 38% YTD. It’s now eclipsed gold as the biggest winner year-to-date among all major commodities.
Silver is sought after as a safe haven asset too, like gold, but it has a far wider range of industrial applications than gold.
Premiums for silver coins and bars are extremely high, ranging from 39% per ounce up.
Of course, there are other ways to invest in silver and gold and to bypass the premium. For example, one can invest in physical silver via the Sprott Physical Silver Trust (PLSV). To invest, one can simply purchase shares via any brokerage account. When you buy shares in this trust you own the underlying metal. [Note that Sprott also offers the Sprott Physical Gold Trust (PHYS).]
Some investors prefer services that store your precious metal for you like BullionVault.com or GoldMoney.com
Orange juice is up 23% YTD and for the first two quarters of the year, outperformed gold and silver.
Poor weather in Brazil affected this year’s crop, along with coronavirus concerns and transportation bottlenecks. Meanwhile, demand surged with shoppers seeking to boost their immune systems with vitamin C.
Overall, 2020 has been a year of surprises. For months, gold outperformed all other major commodities until silver suddenly surged ahead. Both of these precious metals are benefitting from what we call “the fear trade.”
What can we expect next? The only thing we can be certain of is that the markets will continue to surprise us all this year.
Note: Commodity price increases cited here are taken from The Wall St. Journal’s tracking of the continuous front-month futures contract, as accessed on July 29, 2020.
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