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Commodity ETFs in Rough Patch as World Bank Turns Bearish


Issuing a bad omen for commodity-related exchange traded funds, the World Bank believes precious metals, oil and soft commodity prices are set to drop.

Broad commodity ETFs have underperformed the broader market this year, with the PowerShares DB Commodity Index Tracking Fund (DBC) flat, the iPath Dow Jones-UBS Commodity Index Total Return ETN (DJP) up 3.1% and the iShares GSCI Commodity-Indexed Trust (GSG) 0.9% higher.

Now, the World Bank expects precious metals prices to fall as investors shift away from safe-haven assets and into riskier plays on the expanding U.S. economic outlook and higher borrowing, reports Millie Munshi for Bloomberg.

Year-to-date, the Powershares DB Precious Metals Fund ETF (DBP) , which has a 80.7% position in gold and 19.3% in silver, rose 7.4%, SPDR Gold Shares (GLD) increased 7.6% and iShares Silver Trust (SLV) gained 6.4%.

Additionally, the World Bank argues that grains will weaken on rising supplies of rice, corn and wheat. Meanwhile, crude oil will dip as geopolitical tensions dissipate.

Year-to-date, the i Path Grains Total Return Sub-Index ETN (JJG) , which tracks 37.0% soybeans, 19.3% wheat and 43.7% corn, has declined 7.3%, Teucrium Corn Fund (CORN) fell 10.9% and Teucrium Wheat Fund (WEAT) decreased 11.8%.

Meanwhile, the United States Oil Fund (USO) , which follows West Texas Intermediate crude oil futures, has increased 5.6% this year, whereas the United States Brent Oil Fund (BNO) dipped 3.1%.

“Despite the recent strength, the overall weakness in precious-metals prices is likely to persist,” World Bank economists John Baffes and Damir Cosic said in a report. “Most risks are on the downside as economic conditions improve and the U.S. Federal Reserve eventually increases interest rates.”

Furthermore, Goldman Sachs Group also lowered its commodities outlook, pointing to an end to the current cycle, reports Glenys Sim for Bloomberg. Chief Currency Strategist Robin Brooks believes there will be substantial declines in some metals, energy and bulk commodities.

“A prolonged period of elevated commodity prices has catalysed a supply response,” the analysts said in a report. “We do not expect a collapse in global commodity prices. But we do anticipate substantial declines.”

For more information on the commodities market, visit our commodity ETFs category.

Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.