Just as the U.S. stock market rally has started to show signs of strain, some of the biggest commodity funds on the market have begun to gain steam. As of April 5, the SPDR GLD Shares ETF (GLD) was up 7.9% over the past month and trading at record highs. The iShares Silver Trust (SLV) was up 12%, and the United States Oil Fund LP (USO) had gained 11.2%. Some equity funds closely tied to those commodities, such as those that invest in gold and silver miners, have soared even more. At the same time, some typically under-the-radar agricultural commodities, such as cocoa , have surged. There are no U.S. ETFs that directly track cocoa. Taken together, the rise in many commodities could push inflation readings higher and throw a wrench in the plans of companies that rely on them, like Hershey . Still, investors should note that some of the stories behind these rallies are idiosyncratic. “When you look at something like cocoa, that has been marching to its own drum. Similar with orange juice futures. Those are supply-demand stories, based on weather and production issues,” said Jake Hanley, managing director and senior portfolio specialist at Teucrium. An exception could be oil and gold, where worries and potential supply issues caused by the conflicts in the Middle East and Europe could be helping to drive the prices higher. “Gold prices, energy prices moving up, I think you can point to geopolitical issues being the main drivers there,” Hanley said. Who’s buying gold? Gold’s record highs aren’t as simple as retail investors fleeing to safety, however. Five of the six biggest gold ETFs have seen outflows this year, totaling almost $3 billion, according to FactSet. “Investors have really been completely ignoring commodities for a long time. We’re at all time highs for gold, and that’s not because of investors,” said Robert Minter, director of ETF investment strategy at Abrdn. Instead, the main source of buying for gold appears to be from foreign central banks and, lately, hedge funds that are betting on Fed rate cuts, which are historically positive for the yellow metal, Minter said. GLD 5Y mountain Gold, and the ETFs that track it, are trading at record highs in early 2024. What could rally next? Abrdn’s Physical Precious Metals Basket Shares ETF (GLTR) is up more than 8% over the past month. The fund’s holdings include gold, silver, platinum and palladium. Platinum and palladium are key metals in hybrid vehicles, Minter said, and could see bigger demand in coming years as automakers shift their focus to hybrids from solely electric cars. Palladium could be due for a rally due its sharp drop since its peak in early 2022, according to Minter. “Any time you have a commodity down 70%, and you still have strong demand and supply issues are emerging, that looks like a good spot for a reversal trade,” Minter said. Meanwhile, Teucrium has several ETFs focused on agricultural commodities that have climbed over the past month as well, including the the Teucrium Soybean Fund (SOYB) , up over 3%. Hanley said that some companies are starting to experiment with soybeans for renewable energy, which could create additional future demand.
