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While financial assets have had a stellar year, commodity ETF performance has been merely “okay.” The top-performing broad commodity ETF of the year, the WisdomTree Enhanced Commodity Strategy Fund (GCC), increased 17.5% so far this year through December 11. However, the $4.3 billion Invesco Optimum Yield Diversified Commodity ETF (PDBC), the biggest ETF in the broad commodities category, only had a 2% increase during that time.
Collectively, the group has been affected by weakness in key commodities such as soybeans, wheat, natural gas, and crude oil. Conversely, the company has benefited from strong performance in precious metals like gold, which has counterbalanced the losses in other commodities.
2024 has been a year of contrasting fortunes for commodity ETFs. While precious metals like gold and silver have shone brightly, energy commodities and agricultural products have faced challenges. Gold, often sought as a safe-haven asset, has experienced significant gains, driven by factors such as geopolitical tensions and central bank buying. Similarly, silver has benefited from strong industrial demand and investor interest.
On the other hand, energy commodities, including oil and natural gas, have faced headwinds from tepid demand growth and increased supply. However, some energy ETFs have managed to deliver positive returns due to the phenomenon of backwardation, where futures contracts for immediate delivery are priced higher than those for future delivery.
Base metals, such as copper and nickel, have also shown resilience. Strong demand from emerging economies, particularly China, has supported the prices of these commodities. While commodity ETFs can offer diversification benefits and exposure to various asset classes, it’s crucial to remember that they are subject to significant volatility; this is specifically why investors should carefully consider the underlying factors driving commodity prices and the specific risks associated with each ETF before making investment decisions.
