04 July 2014 at 7:26 GMT
From Arabica coffee to lean hogs, it’s been a good first half of the year for the commodity markets. The Bloomberg Commodity Index shows total returns of 7.1 percent. So what’s behind the rally?
Saxo’s Ole Hansen says there were a series of unusual events that have led to the recovery. They include dry conditions in Brazil which helped Arabica coffee to rise by more than 50 percent, and a particularly cold winter in the US which produced a spike in natural gas prices. He notes that the agricultural sector has been the main provider for the positive returns.
While industrial metals haven’t shone, precious metals have and that’s partly down to geopolitical events in Ukraine and Iraq. As well as that, bond yields haven’t performed as well as expected over the past couple of quarters, which has helped to support the gold price.
But what about the second half of the year? Hansen notes that there’s already ample agricultural supply which will hit prices. He also says that unless there’s an escalation in Iraq, crude oil prices may start to fade. However he believes that even if the price doesn’t change, an investor is likely to pick up between 5 and 6 percent just because of the way in which the oil market is structured. The energy sector is also worth a bet, he says.