July has proved a disastrous month for commodities’ prices with the S&P GSCI losing 13.6 per cent month-to-date through July 27, 2015, bringing its level to the lowest since February 25, 2002.
It has now exceeded the bottom of the 2008 global financial crisis, says Jodie Gunzberg, Global Head of Commodities, S&P Dow Jones Indices.
She writes: “Thus far, July 2015 is the seventh worst performing month in the history of the S&P GSCI that goes back to January 1970. It is one of the worst months in more than 45 years or 547 months.”
During July, every single one of the 24 commodities was negative for the month except lean hogs, which were just barely positive by 18 basis points but only when taking into account the positive roll yield; otherwise they were in the negative too, by 14.5 per cent.
Gunzberg writes: “Throughout the history of the index, 23 commodities have been negative together in a month only once in September 2008 and all 24 were negative together only once in the following month of October 2008. The single performer in September 2008 was gold, clearly different from today.”
China’s volatile stock market saw its greatest losses since 2007 on Monday and worries about China combined with the potential for higher interest rates in the US have had a deleterious effect on commodity prices. Data shows that speculators and fund managers are expecting commodity prices to continue to fall.
Figures out last Friday from the US’s Commodity Futures Trading Commission (CFTC) showed hedge funds and other money managers were shorting commodities, pushing US crude prices to the lowest level in five years, and also betting that the gold price will fall for the first time in at least a decade.
For commodities priced in dollars, higher interest rates in the US make the asset class more expensive for consumers.
China features large in the consumer of commodities pool, accounting for close to half of all global copper demand, 70 per cent of iron ore consumption and level with India in terms of buying gold. With China’s growth currently running at 7 per cent, the slowest it has seen in 25 years, concerns are growing that it will inflict a negative impact on commodity prices.