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HomepageInsights & ResearchCommodity performance leads year to date, but is the race over?
Industrial and precious metals are in a horse race for the best year-to-date performance through May 22.

Silver is up 29.6%, gold is up 15.1%, and the Bloomberg Industrial Metals Index (including copper, aluminum, zinc, nickel, and lead) is up 17.7%.1 All three have bested the S&P 500 (+11.8%), Russell 2000 (+2.6%), the Bloomberg Aggregate Bond Index (-1.4%), US REITs (-2.7%), and treasury inflation-protected securities (TIPS) (-0.02%) returns year to date (YTD).2,3,4,5,6

What’s behind this outperformance?

Investors have been underweight commodities after they were disappointed at the level of China's stimulus measures in 2023 following the end of zero covid policies in late 2022.7 China is responsible for more than 50% of commodity demand, excluding energy, making it particularly impactful to commodity demand. However, the highly negative investor sentiment sent commodity prices below where fundamentals alone would price them.

Investors underweight to commodities occurred at a time when inventories were relatively low. Industrial metal inventories on the London Metal Exchange were at 25-year lows last January, and despite rising slightly since then, they remain closer to those lows than average levels.8 It will take little economic follow through to create supply deficits.

So, a step higher in price was overdue, and it has been a focus of our monthly updates for almost a year. But where to now?

Are investors still underweight?

Gold

ETF investors now own the same volume of gold as they did in 2019.9 The 750 tons of gold ETFs have sold in the last two years have reversed the large inflows into gold during the pandemic.

It is as if pandemic spending, US debt expansion, deglobalization, and structural labor market changes have never happened. Investors are underweight by almost any objective look at the US debt and deficit relative to GDP, currently at levels last seen during World War II.10,11

ETF sentiment may improve once the Federal Reserve starts cutting rates. A rate cut is prudent in June, given the weakness in some areas of the lower-income strata of the economy and lingering risks in the commercial real estate market.12

Silver

Futures positioning had risen quickly since the end of February when it was at very low levels. However, it has only risen slightly above the ten-year average and is not near extremes.13 Silver sentiment can mirror sentiment on the Chinese economy, with real estate company debt restructurings and property-specific stimulus helping to improve the outlook on China, industrial metals, and silver.

The gold/silver price ratio fell from an extreme 90 earlier this year to 77, as of May 23, as silver prices rose more than gold prices.14 The ratio is much closer to the average levels of the last ten years.

Copper

Based on Comex futures activity, investors have rapidly increased their allocation to copper from historically low levels to a ten-year high in the number of long contracts owned.15,16 Investors are no longer underweight; they are arguably overweight. How could this affect price and supply?

Unlike other commodities, such as cocoa (+83% YTD), copper does not have easy substitutes.17 Consumers will stop buying chocolate bars at a certain price, while copper consumers are price takers.

High copper prices have little long-term effect on demand and limited short-term effect on mine supply. High prices can bring additional scrap into the market. Since recycling scrap copper saves 85% of the energy used to create new copper, scrap is also financially attractive. Historically, scrap provides about one-third of the total copper supply, so it can make a difference in the short term.18 Large industrial buyers in China can cancel orders, lowering demand while they operate on stockpiled materials, but eventually, they will need to return to the market and purchase again.

A recent example of scraping is in Kenya, where the CEO of Kenya Power has called for a ban on scrap exports from the country to curb vandalism that targets the theft of electrical transformers after the company had 78 transformers stolen so far this year.19

A short-term pullback in copper prices is justified and possible with a short-term drop in demand or a short-term increase in scrap supply. However, demand is expected to expand from the ongoing energy transition in China, the US, and Europe through increased use of wind turbines, solar panels, nuclear energy, grid expansion, and energy-intense artificial intelligence data centers.

The medium-term price outlook on copper is still positive, even from lofty levels. The lengthy process of increasing mine supply has led to attempts to grow inorganically. BHP has proposed a takeover of Anglo-American in what could become the mining sector's largest merger deal.20

Oil

Investors are still very underweight oil. Over the last ten years, money managers have been long West Texas Intermediate oil, ranging from 290,000 to 866,000 contracts. As of May 23, they owned just 330,000 contracts – well below the average of 536,000 contracts.21

Despite a dramatic escalation of risk in the Middle East since October 7, 2023, oil prices have little geopolitical risk priced in. Gasoline prices are up 28% this year (wholesale) – enough to cause the Biden administration to sell one million barrels out of emergency stockpiles in the northeastern US to calm prices ahead of the presidential election in November.22,23 Oil and gasoline prices are of particular concern to all presidential incumbents because they can influence election outcomes.

Nickel

New Caledonia is the third largest nickel producer country in the world. Still, French miner Eramet SA is running its local unit at minimum capacity after violent protests due to a change in voting rules. The potential voting rule change would give more power to recent immigrants, which the native population opposes.24

Final thoughts

Commodity prices in 2024 have responded to bullish fundamentals that have existed for most of 2023: that there are still areas of opportunity in the short term as the sector is, we believe, primarily under-owned.

The medium-term bullish trends remain in place as it continues to be challenging to start new mines, drill new oil rigs, and start new refineries and new smelters. Increasingly, contracts for commodity supply are placed with firms based on political relationships rather than with the most efficient or lowest-cost provider, adding to costs.

Finally, election risks remain elevated in 2024 with the potential for their results to disrupt supply chains.

1 Bloomberg Industrial Metals Commodity Index, gold and silver returns data 12/29/2023–5/22/2024.
2 S&P 500 Index, returns data 12/29/2023–5/22/2024.
3 Russell 2000 Index, returns data 12/29/2023–5/22/2024.
4 Bloomberg Aggregate Bond Index, returns data 12/29/2023–5/22/2024.
5 Bloomberg, US REIT (Real Estate Index Trust), returns data 12/29/2023–5/22/2024.
6 Bloomberg, treasury inflation-protected securities (TIPS), returns data 12/29/2023–5/22/2024.
7 Bloomberg, CFTC commodities futures trading commission Commitment of Traders report 1/1/2004–5/22/2024.
8 Bloomberg, London Metals Exchange, inventory data for copper, aluminum, zinc, nickel, and lead 1/1/2004–5/22/2024.
9 Bloomberg, ETF holders ounces of gold 1/1/2019–5/22/2024.
10 “Sounding the Alarm: America's unsustainable national debt.” Reverse the Curse: U.S. House Budget Resolution (FY24-FY33). House Budget Committee, May 2024. https://budget.house.gov/download/sounding-the-alarm-americas-unsustainable-national-debt.
11 "The Budget and Economic Outlook: 2024 to 2034." Congressional Budget Office, February 2024. https://www.cbo.gov/system/files/2024-02/59710-Outlook-2024.pdf.
12 "A Really Bad Sign for Commercial Real Estate." Bloomberg, May 2024. https://www.bloomberg.com/news/newsletters/2024-05-23/bloomberg-evening-briefing-a-really-bad-sign-for-commercial-real-estate.
13 Bloomberg, silver long contracts 1/1/2014–5/23/2024.
14 Bloomberg, gold/silver price ratio 1/1/2000–5/22/2024.
15 COMEX is an abbreviation of The Commodity Exchange Inc. COMEX is the primary futures and options market for trading metals such as gold, silver, copper, and aluminum.
16 Bloomberg, copper long contracts 1/1/2014–5/23/2024.
17 Bloomberg, cocoa 12/29/2023–5/22/2024.
18 "Economics of the Copper Scrap Market." Investing News Network, September 2023. https://investingnews.com/daily/resource-investing/base-metals-investing/copper-investing/the-economics-of-the-scrap-copper-market/.
19 "Kenya Power Urges Total Ban On Copper Exports to Curb Vandalism." All Africa, May 2024. https://allafrica.com/stories/202405230348.html.
20 "Anglo American to Enter Talks With BHP After Rejecting $50 Billion Bid." Wall Street Journal, May 2024. https://www.wsj.com/business/anglo-american-to-enter-talks-with-bhp-after-rejecting-50-billion-bid.
21 Bloomberg, WTI long contracts 1/1/2014–5/23/2024.
22 Bloomberg, RBOB 12/29/2023–5/22/2024.
23 "Biden releasing 1 million barrels of gasoline from Northeast reserve in bid to lower prices at pump." AP News, May 2024. https://apnews.com/article/gas-prices-biden-northeast-reserve.
24 "Colonial past haunts latest New Caledonia crisis." France 24, May 2024. https://www.france24.com/en/europe/20240516-colonial-past-haunts-latest-new-caledonia-crisis-france.

Important information

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.
Trading in commodities entails a substantial risk of loss and is not suitable for all investors.
Diversification does not eliminate the risk of experiencing investment losses.
Prospectuses for abrdn Physical Gold Shares ETF, abrdn Physical Palladium Shares ETF, abrdn Physical Platinum Shares ETF, abrdn Physical Precious Metals Basket Shares ETF and abrdn Physical Silver Shares ETF
Projections are offered as opinion and are not reflective of potential performance.
Projections are not guaranteed, and actual events or results may differ materially.
ALPS Distributors, Inc. is the marketing agent.
There are risks associated with investing including possible loss of principal.
ALPS is not affiliated with abrdn.

ETF002199 5/1/25
AA-240524-178553-1

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Investors should carefully consider a fund’s investment objectives, risks, fees, charges, and expenses before investing any money. To obtain this and other fund information, please call 866-667-9231 to request a summary prospectus and/or prospectus, or download at www.abrdn.com/us. Please read the summary prospectus and/or prospectus carefully before investing any money.

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For ETFs, please call 844-383-7289 or click here to access a prospectus online. Investing involves risk, including possible loss of principal. ETF shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund.

Important Risks

The abrdn Gold ETF Trust, abrdn Silver ETF Trust, abrdn Precious Metals Basket ETF Trust, abrdn Platinum ETF Trust and abrdn Palladium ETF Trust are not investment companies registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trusts are not subject to the same regulatory requirements as mutual funds. These investments are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility.

Commodities generally are volatile and are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility. Please refer to the prospectus for complete information regarding all risks associated with the Trusts. Shares in the Trusts are not FDIC insured and may lose value and have no bank guarantee.

The value of the Shares relates directly to the value of the precious metal held by the Trust and fluctuations in the price could materially adversely affect investment in the Shares. Several factors may affect the price of precious metals, including:

A change in economic conditions, such as a recession, can adversely affect the price of the precious metal held by the Trust. Some metals are used in a wide range of industrial applications, and an economic downturn could have a negative impact on its demand and, consequently, its price and the price of the Shares;

Investors’ expectations with respect to the rate of inflation;

Currency exchange rates;

Interest rates;

Investment and trading activities of hedge funds and commodity funds; and

Global or regional political, economic or financial events and situations. Should there be an increase in the level of hedge activity of the precious metal held by the trust or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the Shares. Should there be an increase in the level of hedge activity of the precious metal held by the Trusts or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the shares.

Also, should the speculative community take a negative view towards the precious metal held by the Trusts, it could cause a decline in prices, negatively impacting the price of the shares. There is a risk that part or all of the Trusts’ physical precious metal could be lost, damaged or stolen. Failure by the Custodian or Sub-Custodian to exercise due care in the safekeeping of the precious metal held by the Trusts could result in a loss to the Trusts.

The Trusts will not insure its precious metals and shareholders cannot be assured that the custodian will maintain adequate insurance or any insurance with respect to the precious metals held by the custodian on behalf of the Trust. Consequently, a loss may be suffered with respect to the Trust’s precious metal that is not covered by insurance.

Commodities generally are volatile and are not suitable for all investors.

Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or "authorized participants" may trade directly with the Trusts, typically in blocks of 25k to 100k shares.

Commodities generally are volatile and are not suitable for all investors. This material must be accompanied or preceded by the prospectus. Carefully consider each Trust’s investment objectives, risk factors, and fees and expenses before investing. Please click here to review the prospectus.

ALPS Distributors, Inc. is the marketing agent for the abrdn Gold ETF Trust, abrdn Silver ETF Trust, abrdn Precious Metals Basket ETF Trust, abrdn Platinum ETF Trust and abrdn Palladium ETF Trust.

ALPS Distributors, Inc. is the distributor for abrdn ETFs.

ALPS Distributors, Inc. is not affiliated with the companies of abrdn.

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An investor should consider the investment objectives, risks, charges and expenses of the ETFs carefully before investing. To obtain a prospectus containing this and other important information, call 1-844-383-7289 or visit www.abrdn.com/us/etf. Read the prospectus carefully before investing.

Fund Risk: There are risks associated with investing including possible loss of principal. Commodities generally are volatile and are not suitable for all investors. There can be no assurance that the Fund’s investment objective will be met at any time. The commodities markets and the prices of various commodities may fluctuate widely based on a variety of factors. Because the Fund's performance is linked to the performance of highly volatile commodities, investors should consider purchasing shares of the Fund only as part of an overall diversified portfolio and should be willing to assume the risks of potentially significant fluctuations in the value of the Fund. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. The Fund’s return may not match the return of the index.

Through holding of futures, options and options on futures contracts, the Fund may be exposed to (i) losses from margin deposits in the case of bankruptcy of the relevant broker, and (ii) a risk that the relevant position cannot be close out when required at its fundamental value. In pursuing its investment strategy, particularly when rolling futures contracts, the Fund may engage in frequent trading of its portfolio of securities, resulting in a high portfolio turnover rate.
As a "non-diversified" fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of Shares may be more volatile than the values of shares of more diversified funds.

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The abrdn Bloomberg Industrial Metals K-1 Free ETF is new and has limited operating history.

“Bloomberg®” and “Bloomberg Commodity Index Total ReturnSM,” “Bloomberg Commodity Index 3 Month ForwardSM” and “Bloomberg Industrial Metals Subindex Total ReturnSM” are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by abrdn ETFs Advisors LLC. Bloomberg is not affiliated with abrdn ETFs Advisors LLC, and Bloomberg does not approve, endorse, review, or recommend abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI), abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD), and abrdn Bloomberg Industrial Metals K-1 Free ETF (BCIM). Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity Index Total Return, Bloomberg Commodity Index 3 Month Forward” and “Bloomberg Industrial Metals Subindex Total Return".

Please see the current prospectus, www.abrdn.com/us/etf for more information regarding the risk associated with an investment in the Funds.

S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.

Standard Deviation: Standard deviation is a statistical measure of the extent to which returns of an asset vary from its average.

Bloomberg Commodity Index: The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes.

Discount- A situation when the share price of a fund trades below its net asset value.

Premium- A situation when the share price of a fund trades above its net asset value.

The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

Annualized Volatility is a statistical measure of the dispersion of returns for a given security or market index

Beta is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market

Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk
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