A weakening dollar is making materials denominated in the currency more appealing at a time when equities are on a tear and the world is on a path to recover from the coronavirus pandemic. All of that has prompted speculators to pile back into commodity markets, boosting combined bets on rising prices to the highest in at least a decade.
“Commodities are on a winning streak right now,” said Michel Salden, head of commodities at Vontobel Asset Management. “Markets are rallying due to the combined effect of U.S. dollar weakness, the cyclical recovery from Covid-19, central bank stimuli, and increased fiscal spending on infrastructure.”
The calculations include 20 of the 23 raw materials in the Bloomberg Commodity Index. They exclude aluminum, zinc and nickel, which are reported by the London Metal Exchange on a different basis. “Even grains, that had been on a downward path since 2012, have rallied more than 45% over the last six months due to La Nina-related droughts in Latin America,” Salden said. He also highlighted China’s role in securing strategic reserves of commodities.