Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Commodities: After A Strong 2021, Positive Sentiment Will Boost Prices In 2022

By Andy HechtCommoditiesJan 07, 2022 04:21AM ET
www.investing.com/analysis/commodities-after-a-strong-2021-positive-sentiment-will-boost-prices-in-2022-200613839
Commodities: After A Strong 2021, Positive Sentiment Will Boost Prices In 2022
By Andy Hecht   |  Jan 07, 2022 04:21AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This article was written exclusively for Investing.com

  • The winners in Q4
  • The losers in 2021’s final quarter
  • The winners since the end of 2020
  • Some commodities declined in the year that ended on Dec. 31, 2021
  • 3 reasons for the rally - 3 reasons it will continue in 2022

The global pandemic pushed commodity prices to multi-year lows in 2020, setting the stage for a spectacular comeback and rallies in 2021. Most commodity prices rose in the year that ended last week, but some laggards declined on a year-by-year basis.

The central bank liquidity and government stimulus programs worldwide that stabilized the global economy lit a bullish fuse in the commodities asset class. The US Fed spent months calling inflationary pressures “transitory,” blaming the economic condition on pandemic-related supply chain bottlenecks.

At the December FOMC meeting, the world’s leading central bank finally threw in the towel and retired the term, indicating that inflation is an increasing structural issue that requires a more hawkish approach to monetary policy. Commodity prices spent 2021 screaming at the central bank that finally woke up at its final gathering. Meanwhile, economist Mohamed El Erian recently called “transitory” the Fed’s worst call in history.

Most commodity prices rose in 2021 and continued to exhibit bullish trends at the end of the year. The trend is always your best friend in markets, and will likely continue in 2022.

Winners In Q4

Thirty of 41 of the leading commodities posted gains in 2021’s final quarter.

Q4 2021 Winners
Q4 2021 Winners

Source: Exchange Settlement Prices

The illiquid lumber market led the way on the upside with a nearly 83% gain over the three months. Twelve commodities posted double-digit percentage gains in Q4.

Losers In 2021’s Final Quarter

Eleven commodities posted losses from Sept. 30 through Dec. 31, 2021.

Q4 2021 Losers
Q4 2021 Losers


Source: Exchange Settlement Prices

The Baltic Dry Index (BDI) that monitors freight rates fell during the winter months for shipping. However, the BDI reached the highest price in many years in 2021 and was still higher than the price at the end of 2020 on Dec. 31.

Coal was the second-worst performer with an over 46% decline, but coal prices reached an all-time high in October before turning lower. Natural gas rallied to $6.466 per MMBtu in October, the highest price since February 2014, before turning lower and falling by over 36% for the quarter.

Ironically, except for cocoa, all commodities that declined in Q4 posted gains in 2021. Ten of the eleven all posted double-digit percentage gains for the year.

Winners Since End Of 2020

In 2021, thirty-three commodities posted gains, while there were only eight losers for the year.

2021 Winners
2021 Winners

Source: Exchange Settlement Prices

LME Tin and Oats led the way higher. Both markets suffer from illiquidity, which tends to exacerbate price moves. Thirty-two commodities posted double-digit percentage gains, with thirteen gaining over 50% for the year.

Some Commodities Declined In Year That Ended Dec. 31, 2021

There were four double-digit percentage losers in 2021 out of eight commodities that fell since the end of 2020.

2021 Losers
2021 Losers

Source: Exchange Settlement Prices

Iron ore was the top loser, but the price had gained over 72% in 2020. Precious metals prices moved lower, with losses in palladium, silver, platinum, rhodium, and gold in 2021, after all of the metals posted impressive gains in 2020. Soybean meal was over 43% higher in 2020, while cocoa posted a marginal 2.24% gain in 2020.

The bottom line is the price action in the commodities asset class was highly bullish in 2021. A composite of the 29 leading and most liquid commodities that trade on the US and UK futures and forward exchanges moved 4.73% higher in Q4 and 26.79% higher in 2021.

3 Reasons For Rally - 3 Reasons It Will Continue In 2022

Following the 2008 global financial crisis, central banks and governments provided liquidity and stimulus to stabilize the economy. The stabilization tools led to a commodity rally that lasted until 2011-2012.

While the 2020 global pandemic was a far different event, the tools were the same. The only difference was the liquidity tidal wave, and stimulus tsunami, was far greater in 2020 and 2021 than in 2008 and 2009.

Albert Einstein said that insanity is doing the same thing repeatedly and expecting a different result. Three factors, aside from the 2008 versus 2020 comparison, support higher commodity prices in 2022:

  • Inflation remains a clear and present danger in 2022.
  • The Fed forecasts a 0.90% Fed Funds rate in 2022 and a 1.6% rate in 2023. Even if inflation recedes, interest rates will remain in negative territory for the coming year.
  • The trend is always your best friend in markets. At the beginning of 2022, the raw materials asset class trend remains bullish.

The ascent of commodity prices has been a bullish relay race, with one commodity handing the bullish torch to another since the early 2020 lows. Bull markets rarely move in straight lines, and corrections can be brutal, as we witnessed in many commodities this year. Lumber fell from over $1,700 per 1,000 board feet in May 2021 to below $500 in August. Copper declined from nearly $4.90 to under $4 over the same period. NYMEX crude oil fell from over $85 in October 2021 to below $63 per barrel in early December. A host of other commodities corrected, but none have come anywhere near the 2020 lows.

I expect higher lows and higher highs in the asset class to continue in 2022. Buying on price weakness will likely be the optimal approach as inflationary pressures are not going away anytime soon.

Commodities: After A Strong 2021, Positive Sentiment Will Boost Prices In 2022
 

Related Articles

Commodities: After A Strong 2021, Positive Sentiment Will Boost Prices In 2022

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
Jeff Page
Jeff Page Jan 08, 2022 2:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Do you see China as the wildcard for copper? As the #1 industrial metal, I use copper as an inflation read and a growth read. How much demand will be lost with a slowing China?
Roberta Garrett
Roberta Garrett Jan 08, 2022 2:41PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
you make a good point about China slowing and your thinking in the right terms. from reading varies articles i too think China is slowing more than gets recognized. Commodity and PM holders could be in serious trouble. no one is building anything and PMI is slowing globally. plus China owns the LME now so maybe they want to keep Commodity prices lower for longer so they can get materials less expensive? PM bulls complain about JPM, Goldman etc but I don't believe that's whats going on. the world is slowing due to omicron much worse than delta.
Shoukat Pervaiz
Shoukat Pervaiz Jan 07, 2022 2:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
when there is data of buy the market move to strong sell when data shows strong sell the market moves in buy direction why .....?
Shoukat Pervaiz
Shoukat Pervaiz Jan 07, 2022 2:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
when there is data of buy the market move to strong sell when data shows strong sell the market moves in buy direction why .....?
Adarsh Shettigar
Adarsh Shettigar Jan 07, 2022 2:38PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Most data are already factored in before release. Once it is confirmed, profit booking occurs.
Roberta Garrett
Roberta Garrett Jan 07, 2022 8:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So, if the trend is your friend, how should we interpret silver? Its been awful if you hold it watching your money go to waste. IHS forecasts a price of $20 for 2022. What does the author think will happen?
Mohd Izhar Muslim
Mohd Izhar Muslim Jan 07, 2022 5:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
This mean a lots t me, Thanks for the article 💯
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email