BY: NICOLAS PIQUARD, CFA®, VICE-PRESIDENT, PORTFOLIO MANAGER AND OPTIONS STRATEGIST, HORIZONS ETFS
September 19, 2017
Recently, we’ve witnessed a significant run-up in the price of gold. In fact, we’re getting close to the highs gold made in 2016. What’s fuelling this trend? A weak U.S. dollar and global political uncertainty have contributed to gold prices breaking out of a long bearish trend extending all the way back to 2011.
Source: Bloomberg, as at September 7, 2017.
Gold is not alone however. It appears that many commodities – in particular base metals such copper, nickel, iron ore and zinc – have all been moving to the upside.
As I have stated before, we are late in the business cycle, and this is where commodities historically do well. The question now becomes: Are we too late to the game? Have commodities had their run? Is the cycle over?
Perhaps, but unlikely, given the data in the chart below:
Source: Bloomberg, as at September 7, 2017.
This shows the ratio of the SPX Total Return Index versus the Goldman Sachs Commodities Index going back 30 years. The last time the ratio of stocks-to-commodities was this high was back in 1999 when oil was below $15 and gold was below $300. Oil went on to increase to over $100 a barrel gold to over $900 by 2007.
On a long-term historical basis, commodities still have a long way to go.
The views/opinions expressed herein may not necessarily be the views of Horizons ETFs Management (Canada) Inc. All comments, opinions and views expressed are of a general nature and should not be considered as advice to purchase or to sell mentioned securities. Before making any investment decision, please consult your investment advisor or advisors.