Commodity Market Update, 1Q 2022

Commodity rally appears overbought, expect some pullbacks

The commodity price rally appears to be slowing, which could point to lower returns this year. Several overbought signals were confirmed over the past few months, especially in natural gas, which declined more than 30% in Q4. As expected, the dispersion in commodity returns narrowed over the past quarter as earlier declines in metals and agriculture stabilized. The US dollar remains a wildcard, which has strengthened along with commodities over the past few months. Meanwhile, commodity currencies such as the Australian and Canadian dollar have lagged the upside in commodities. 

Trading performance was positive in Q4, which made up for some losses in Q3. Short natural gas was the best performing trade, while a short-term buy in soybean oil detracted from gains. Overall performance in 2021 was positive, although most of the strategy’s gains were realized in the fourth quarter of 2020 around the start of the commodity rally. Recent volatility has led to choppy trading conditions, which means the strategy will be more selective with positions.

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The information presented is for informational purposes only and should not be considered as investment advice nor as a recommendation of any particular strategy, allocation or investment product: before making any investment decision, you should seek expert, professional advice and obtain information regarding the legal, fiscal, regulatory and foreign currency requirements for any investment according to the laws of your home country and place of residence. Investing involves risk, including the possibility of loss of principal. Any forward-looking statements or forecasts are based on assumptions and actual results may vary from any statements or forecasts.

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