The advantage is slim, within the margin of error of most polls, and both candidates have led at alternating points in the last month. As if that lack of clarity were not enough, one candidate has had two assassination attempts in the previous two months. During that candidate’s presidency, it was difficult to forecast incoming policy changes. The other party's candidate wasn't a presidential candidate two months ago and has primarily kept future policy aims private.2
Given the lack of clarity on future policy, it is difficult to base high-conviction investment ideas on the outcome of the coming election.
The point is simple: given the lack of clarity on future policy, it is difficult to base high-conviction investment ideas on the outcome of the coming election.
Our focus is on a different form of polling data that clearly identifies implications from extreme data. This clarity may offer a strong sense of confidence in the analysis. Commodities often reward contrarian position-taking, especially when sentiment is at extremes. The commodity market's version of election polling data can be gleaned by positioning data and sentiment surveys.
Unlike the latest presidential election polls, the investing public has spoken loudly and clearly about topics affecting commodities.1
The sentiment indicators in the commodity markets are not in the normal range but are at extremes that can generate more confidence.
We focus on four current examples:
Oil
The negative sentiment toward oil has not been this extreme in the last thirteen years. Money managers have not taken this large of a negative view on oil prices at any time since 2011. As of September 10th, they were long just 47,061 contracts, which is less than during the European Debt Crisis in 2011 (210,000 contracts), the oil price crash in 2014 (225,000 contracts), and COVID lockdowns of 2020 (228,000 contracts).3,4
Oil price returns off eight previous periods of very low sentiment averaged 46.6% in the six months afterward.5 Historically, contrarian investors have reaped benefits by going long when sentiment is very negative.
Extreme positioning suggests that the current market conditions could be seen as an opportunity, especially considering investors typically allocate at least a small amount to energy as a hedge during geopolitical crises or trade disruptions. Extremely low levels of oil ownership imply investors are temporarily not holding these typical hedges on geopolitical disruption.
If reversed, we believe these extremely low sentiment levels could significantly raise oil and energy prices.
If reversed, we believe these extremely low sentiment levels could significantly raise oil and energy prices. Therefore, investors may want to ensure they own a standard allocation to a broad commodity exchange-traded fund (ETF).
Gold
Gold sentiment in the ETF market is back down to pre-COVID levels despite prices at all-time highs.6
Gold ETF investors sold 810 tons of gold between April 2022 and May 2024.7 This took investors back to 2019 levels of gold ownership (in ounces). That was pre-COVID, before over $5 trillion in COVID stimulus. Since then, US debt has risen from $23 trillion in Q4 2019 to $34 trillion in Q2 2024, and yearly deficits from $983 billion in 2019 to $1.6 trillion in 2023, all of which would argue for more gold ownership.8,9
The US Federal Reserve (Fed) started cutting rates on September 18 – the first time since July 2019 – a break of over five years.10,11 Historically, the shift from rate hikes to cuts has kicked off bull markets in gold and silver. In 2000, it kicked off a rise of 57% in gold and 65% in silver.12 In 2008, it started a run in gold prices that rose 235%, while silver rose 318%.13 After rate changes in 2018, gold rose by 69% and silver by 101%, respectively.14 India's recent decision to lower gold import taxes to the lowest level in a decade – just in time for the peak festival demand season – could potentially inject optimism into the gold jewelry market. As India and China are the two largest markets for retail gold demand, this move may significantly boost gold consumption.15
Gold ETF investors are entering a Fed rate-cutting cycle with low allocations to gold and silver when they typically shift to higher allocations. The official sector may see continued high demand from foreign central banks as they diversify away from US dollar-based reserves.
We believe it may be prudent for investors to ensure they have an overweight allocation to a physical gold ETF.
Given the gap between investors' low gold allocations and the optimistic gold demand outlook, we believe it may be prudent for investors to ensure they have an overweight allocation to a physical gold ETF.
Platinum and palladium
Consumers prefer fossil fuel-driven automobiles, but investors still don't like platinum and palladium. Over the last few years, platinum and palladium prices have declined as auto consumer demand was forecast to shift to electric vehicles, which do not use platinum and palladium for pollution control.
Platinum prices have fallen 25% since their all-time high of $1,305 per ounce in February 2021 (early in the Russian invasion), while palladium prices have fallen 66% since their all-time high of $3,171 per ounce in March 2022.16 That negative sentiment and price action may end soon.
Earlier this year, Deloitte's Global Automotive Consumer Survey revealed that 88% of US car buyers preferred that fossil fuels or a fossil fuel/battery combination power their next auto.17,18 These choices necessitate a catalytic converter for emission reduction, which requires platinum and palladium for manufacture.
Auto companies have already started to feel the reality suggested by the Deloitte survey.18 Automakers' US electric vehicle (EV) sales fell in the first half of 2024, with Volkswagen units down 28% and Volvo down 72%. Although Ford sales were higher, they still lost $2.5 billion on EVs in the first half.18,19
The story in Europe is similar: EV industry sales across Europe fell 44.3% in August.19 Despite the significant price declines of critical pollution control metals platinum and palladium, auto industry surveys and EV sales data indicate that the public prefers gasoline and hybrid autos.
For investors seeking to capitalize on the gap between EV adoption goals and acceptance, we believe a position in a physical platinum or palladium ETF could be a strategic move.
Automakers will require more platinum and palladium to produce these desired autos. For investors seeking to capitalize on the gap between EV adoption goals and acceptance, we believe a position in a physical platinum or palladium ETF could be a strategic move.
Broad commodities
Investors have allocated less to broad commodity funds than at any time in the last seven years. A Bank of America Merrill Lynch fund manager survey notes that commodity allocations are at a seven-year low, with the average manager short 15%.20 Prior low commodity weights occurred in December 2006, December 2008, May 2013, and April 2020.20 After hitting the previous low weights, the broad commodity index rose 50%, 56%, 6%, and 130%, respectively.21
We believe investors may wish to consider a broad commodity index ETF to capture the upside from a reversion to normal allocation levels and any monetary or fiscal stimulus for the Chinese economy.
Despite the current negative sentiment, it's important to note that investors' historically extreme views on commodities have often led to positive returns. We believe investors may wish to consider a broad commodity index ETF to capture the upside from a reversion to normal allocation levels and any monetary or fiscal stimulus for the Chinese economy.
Final thoughts
While the investing public is currently focused on the election's investment implications, it's worth noting that historically, one-sided negative views on commodities have often led to attractive returns.[22] We believe this potential for notable returns may be an opportunity that should not be overlooked.
1 Latest Polls. FiveThirtyEight, September 2024. https://projects.fivethirtyeight.com/polls/.
2 "Harris isn’t giving the specifics some undecided voters say they want." CNN, September 2024. https://www.cnn.com/2024/09/18/politics/harris-policy-specifics-analysis/index.html.
3 European Debt Crisis took place from 2009 until the late 2010s when several Eurozone member states were unable to repay or refinance their government debt.
4 Bloomberg data 01/10/2011–9/17/2024.
5 Bloomberg data 210,000 contracts at 6/30/2011, returned +18.17% to 2/24/2012; 167,000 contracts at 6/29/2012 returning +39.54 to 9/6/2013; 225,000 contracts at 11/28/2014 returning +13.5% to 6/10/2015; 242,000 contracts at 12/31/2015 returning +39.9% to 6/8/2016; 357,000 contracts at 6/30/2017 returning 54.7% to 1/26/2018; 294,000 contracts at 12/31/2018 returning +55.8% to 4/23/2019; 228,000 contracts at 3/31/2020 returning +115.9% to 8/19/2020; 205,000 contracts at 6/30/2023 returning +35.4% to 9/27/2023.
6 Bloomberg data as of 9/16/2024.
7 Bloomberg data 4/20/2022–5/14/2024; Bloomberg data 5/28/2024–9/19/2024.
8 We are the Pandemic Response Accountability Committee (PRAC). Pandemic Oversight. https://www.pandemicoversight.gov.
9 "Fed rate cuts to soften blow of spiraling U.S. debt — but it won’t solve the $35 trillion problem." MarketWatch, August 2024. https://www.marketwatch.com/story/fed-rate-cuts-to-soften-blow-of-spiraling-u-s-debt-but-it-wont-solve-the-35-trillion-problem-0707936e.
10 US Federal Reserve is the central bank of the United States responsible for setting monetary policy.
11 Bloomberg data Federal Funds rates 1/1/2000–9/23/2024.
12 Bloomberg data 5/24/2000–3/31/2004 (gold); 5/24/2000–4/6/2024 (silver).
13 Bloomberg data 6/19/2006–8/22/2011 (gold); 6/15/2024 (silver).
14 Bloomberg data 11/30/2018–8/6/2020 (gold); 11/19/2018–8/10/2020 (silver).
15 "Gold Rush in India: Duty Cut Ignites Massive Buying Spree." The Jerusalem Post, August 2024. https://www.jpost.com/business-and-innovation/precious-metals/article-815319. https://www.jpost.com/business-and-innovation/precious-metals/article-815319.
16 Bloomberg data Platinum price 2/15/2021–9/18/2024, Palladium price 3/8/2022–9/18/2024.
17 Deloitte is a global audit, consulting and industry insight provider.
18 2024 Global Automotive Consumer Study. Deloitte, January 2024. https://www.deloitte.com/global/en/Industries/automotive/perspectives/global-automotive-consumer-study.html.
19 "EU car sales at 3-year low in August, EV sales plunge 44%." Reuters, September 2024. https://www.reuters.com/business/autos-transportation/eu-car-sales-3-year-low-august-ev-sales-down-439-acea-says-2024-09-19/.
20 "Rate-cut fever boosts investor sentiment in September, BofA survey shows." Reuters, September 2024. https://www.reuters.com/markets/rates-bonds/rate-cut-fever-boosts-investor-sentiment-september-bofa-survey-shows-2024-09-17/.
21 Bloomberg data: Bloomberg commodity index total return 12/19/2006–07/02/2008 (+50.35%), 12/12/2008–4/29/2011 (+56.26%), 04/23/2013–04/29/2014 (+6.65%), and 04/27/2020–06/09/2022 (+130.26%).
22 Bloomberg data WTI and Brent oil: 210,000 contracts at 6/30/2011, returned +18.17% to 2/24/2012; 167,000 contracts at 6/29/2012 returning +39.54 to 9/6/2013; 225,000 contracts at 11/28/2014 returning +13.5% to 6/10/2015; 242,000 contracts at 12/31/2015 returning +39.9% to 6/8/2016; 357,000 contracts at 6/30/2017 returning 54.7% to 1/26/2018; 294,000 contracts at 12/31/2018 returning +55.8% to 4/23/2019; 228,000 contracts at 3/31/2020 returning +115.9% to 8/19/2020; 205,000 contracts at 6/30/2023 returning +35.4% to 9/27/2023. Bloomberg data: Bloomberg commodity index total return 12/19/2006 to 07/02/2008 +50.35%; 12/12/2008 to 4/29/2011 +56.26%; 04/23/2013 to 04/29/2014 +6.65%; 04/27/2020 to 06/09/2022 +130.26.
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.
ETF002249 3/31/25
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