A Return To Higher Prices?

For months, actually for years there has been a gradual erosion of commodity prices.  Just a few years ago Crude Oil was trading at $147 per barrel, Sugar at 36 cents per pound, Wheat at $13.00 per bushel,  Coffee at $3.00 per pound and Gold at $1,900 per ounce. Over the recent months most of those markets traded at one-half to two-thirds of those prices. Sugar reached a low of 10.00, Wheat dropped to 4.35 and Coffee traded down to 111.  In the case of Crude Oil it dropped by over 80 percent! Yes, deflation has been prevalent in many markets as global economies navigate through a sea of uncertainty, stagnant growth, negative interest rates and slack demand. However, it appears things are changing.  The Dow Jones-UBS Commodity Index© is a an index made up of exchange-traded futures on physical commodities.  It currently represents 20 commodities which are weighted to account for economic significance and market liquidity.  This informational index has the following weighting:

Subindex                  Weight (%)  
Agriculture               32.56%
Energy                     31.35%
Industrial Metals      15.96%
Precious Metals       14.57%
Livestock                   5.57%

This is a broad representation of global commodity prices.  When viewed in chart form (see below) the downturn in global economic conditions along with significant demand for goods and services is apparent.  However we believe that tide is turning.  Recent developments, including the rise of prices for many commodities, have been encouraging.  Economic and earnings reports, along with the mention of improving metrics from certain central banks are signaling the potential for a rise in demand and the start of a general re-inflating.  Many of the components of the index including the Agricultural, Precious Metals, and Energy sectors have seen market improvement.  We believe opportunities to participate in multiple markets that have “been down too far for too long” are numerous. Prudent investors will benefit from higher prices and a more inflationary environment instead of becoming hindered by them.

For additional information and risk parameters please contact Mitch LaRocca @ 972-387-0080 or mitch@dallascommodity.com

DJ-UBS Commodity Index



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