As always there are winners and losers in the commodity futures complex. Where does gold stack up this year? Let's take a look.
It's been a rough year for a lot of commodity markets. Crude oil, of course, has been stealing headlines with its 40% plunge year-to-date. But, there have been quite a few winners too in the commodity arena. Notably, coffee futures have stolen the show on the upside with 43% gains year-to-date, according to Barchart.com The cattle markets have been on fire this year as well, with feeder cattle and live cattle boasting 30% and 21% gains respectively. See the Barchart.com graph below. Other so-called "softs" markets including cocoa and sugar are set to end the year on a positive note as well.
Notably, financial instruments such as stocks and the U.S. dollar and even Treasuries are posting strong to solid gains for the year. On the downside, grains have taken it on the chin, with corn and soybeans showing hefty losses for the year and energies.
Where does gold fit in? Is it a commodity or a financial instrument? The answer, of course, is both. And, that may be why gold is little changed on the year, or down 0.87%, according to Barchart.com's data.
Let's take a look at another chart for perspective. Figure 2 below shows the Dow Jones-UBS Commodity Index (a broad based commodity index) versus gold. The picture is a long-term monthly view. The strong secular boom in overall commodity prices can be seen from the 2002 low to the 2008 peak on the commodity index. From there, commodity prices collapsed to their 2009 low as the global financial crisis unfolded and global demand for commodities shrank. But, gold (seen in red on Figure 2) continued its relatively steady march higher throughout the broader commodity collapse, as it gained support from its financial-like qualities.
In recent years, gold has weakened, but has still outperformed the broader commodity index. Commodity bears are targeting a retest of the 2009 low marked as Point A on Figure 2 and that may well be in the cards in 2015. But, gold is bucking the broader commodity trend, at least on a relative basis.
Why is that? Gold tends to act as both a commodity, but also as a type of currency. It is a mixture of a commodity and a financial instrument. While it is impacted by broader commodity market cycles, as it is priced in U.S. dollars, other elements including portfolio diversification, currency hedging and wealth preservation come into play for longer-term gold investors.
It's not been a great year for gold, but it's not been a terrible one either.
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