Crude Oil Is The Best-Performing Commodity Of 2015 So Far by Frank Holmes

Can we really be halfway through the year? That’s what my calendar tells me, which means it’s time for the 2015 commodities halftime report.

The periodic table of commodity returns, consistently one of our most popular pieces, has been updated to reflect the first half of 2015. Click on the table for a larger image.

Crude Oil

As an asset class, commodities continue to be a challenging space for investors, as they’ve faced many headwinds lately including lackluster purchasing managers’ index (PMI) numbers and a strong U.S. dollar.

Crude Oil

Crude Pulls off Coup but Faces Strong Downward Pressure

The widest expansion this year was made by none other than crude oil, the worst-performing commodity of 2014. As of June 30, oil posted gains of over 11 percent, rising to $59.47 per barrel. After falling more than 50 percent since last summer, though, it had little else to go but up. That oil claimed the top spot just highlights the reality that commodities are in a depressed state right now.

Case in point: This week, West Texas Intermediate (WTI) retreated to $50 per barrel, putting it back in the red. This move was largely in response to Greece’s debt dilemma, China’s slowdown and weakening PMI numbers. After the JPMorgan Global Manufacturing & Services PMI was released, showing a continued downtrend in manufacturing activity, oil almost immediately dropped $4. The lifting of sanctions on Iran, if approved by Congress, could also place downward pressure on WTI, with some analysts seeing it returning to the $40s range.

As the 800-pound commodity gorilla, China greatly contributes to the performance of oil. Its own PMI reading remains below the key 50 threshold, indicating that its manufacturing sector is in contraction mode. This has a huge effect on the consumption of oil and other important commodities.

The good news is that the projected crude price for the remainder of 2015 should be high enough to support continued production in drilling areas such as the Bakken, Eagle Ford and Permian basins, according to the Energy Information Administration (EIA). The oil rig count, as reported by Baker Hughes, has advanced for the third consecutive week, after 29 straight weeks of declines.

Crude Oil

King Corn Pops to the Top

We all know that corn is in practically everything we eat and drink, from soda to bread to salad dressing. It’s fed to livestock and poultry and used to make ethanol, plastic, glue and more. The grain is so ingrained in our lives that the U.S. government subsidizes it to the tune of $4.5 billion a year.

For this reason and more, American farmers favor the grain. In 2013, a record amount of corn was grown and sent to market, which resulted in a decline of 40 percent. That year it was the worst-performing commodity.

Since then, corn has found its footing and, as of June 30, the commodity is up 4.28 percent.

Zinc Is Flying off Car Lots

Sought for its anti-corrosive properties, zinc is staging a comeback and is set to make its longest run of gains in over a year, according to Mineweb.

The reason? Accelerating automobile sales in Europe. Zinc can be found in all parts of a car, from its tires to door handles, and because it can store six times more energy per pound than more conventional battery systems, the metal is also used in electric vehicles.

The European Automobile Manufacturers Association reports that demand for new vehicles is up 14 percent year-over-year in June, its largest increase since December 2009. New car registrations in most European markets are seeing double-digit growth, with Portugal, Spain, Ireland and the Czech Republic leading the pack.

Gold Demand in China Sparkles

In a much-anticipated announcement, China broke its six-year silence on the amount of gold its central bank holds. And although the number jumped nearly 60 percent from 1,054 tonnes in 2009 to 1,658 tonnes, it underwhelmed the market, as many analysts had expected almost double the amount. Bullion fell to a fresh five-year low on Friday, while stock in Barrick Gold, the world’s largest producer, plunged to a level not seen since the Bush Administration—the elder Bush, that is.

But other news out of China, the largest purchaser of gold, suggests that the yellow metal is still very much on consumers’ minds. Just-released gold withdrawal numbers from the Shanghai Gold Exchange (SGE) came in at 1,180 tonnes—a huge amount—setting a new record for withdrawals in the H1 period and leading many analysts to predict a new annual record.

Crude Oil

Gold demand in China normally cools around this time before picking up momentum in anticipation of the Chinese New Year. That demand has held up so well is a good sign for the second half of the year.

Even though gold’s down about 3 percent year-to-date, our Gold and Precious Metals Fund (USERX) is holding up. USERX currently has four stars overall from Morningstar, among 71 Equity Precious Metals funds as of 6/30/2015, based on risk-adjusted returns. This is a testament to the management skills of portfolio manager Ralph Aldis and our team of analysts.

The MoneyShow San Francisco

Right now I’m in San Francisco attending the three-day MoneyShow conference, where I’ll be presenting tomorrow. If the Bay Area isn’t in your travel plans, you can always watch the presentation live on your computer, tablet or smartphone by registering at eMoneyShow. The event will be available on-demand until August 8. I hope you can join us!

Index Summary

  • The major market indices were up this week. The Dow Jones Industrial Average rose 1.84 percent. The S&P 500 Stock Index rose 2.41 percent, while the Nasdaq Composite rose 4.25 percent. The Russell 2000 small capitalization index rose 1.20 percent this week.
  • The Hang Seng Composite rose 2.06 percent this week; while Taiwan rose 1.48 percent and the KOSPI rose 2.25 percent.
  • The 10-year Treasury bond yield fell 5 basis points to 2.35 percent.

Domestic Equity Market

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Strengths

  • Information technology was the best performing sector in the S&P 500 this week, led by Google which rose sharply after reporting stronger than expected earnings. The S&P 500 Technology Sector Index rose 5.26 percent this week.
  • Financials also performed well this week as earnings releases pleased the markets. The S&P 500 Financials Sector Index rose 3.01 percent.
  • Health care stocks rallied this week, maintaining the momentum they gained from the Obamacare ruling. The S&P 500 Healthcare Index rose 2.23 percent this week.

Weaknesses

  • Energy was the worst performing sector in the S&P 500 as crude oil prices continue to slide. The S&P 500 Energy Sector Index fell 1.19 percent this week.
  • Consumer’s appetite is weakening, as indicated by the pullback in the University of Michigan Consumer Sentiment Index.
  • Retail sales contracted between the months of May and June, creating concern over the strength and momentum of domestic consumer-based companies.

Opportunities