The 24 individual commodities comprising the S&P GSCI finished the first month of 2023 with divergent performance. This echoed the uncertain path forward regarding inflation expectations. Half outperformed, with industrial metals leading the way, while the other half declined, with natural gas tanking, as European countries filled their tanks to their brims. Gold had one of its best starts to a year in a decade, while the agriculture and livestock sectors finished near flat for the month, which masked the volatility of the underlying commodities.

Market participants started 2023 by reversing some of the price action in key industrial metals. The S&P GSCI Zinc outperformed by 14.59%, as the London Metal Exchange (LME) metal inventory plunged to the lowest level since 1989. This was slightly offset by rising zinc inventories in China. The S&P GSCI Aluminum and S&P GSCI Copper rose by 11.34% and 10.45%, respectively, on the back of recent expectations of a soft landing globally. These three metals posted their best start to a year in over 30 years. The S&P GSCI Nickel cooled off after posting one if its best yearly performances in 2022. Industrial metals are considered the most crucial inputs to our future economy, with demand expected to pick up rapidly, while supply may be constrained over the next decade. China’s reopening from strict COVID-19 lockdown restrictions also contributed to the bullish price action in the sector.

The major news in the energy complex was the S&P GSCI Natural Gas dropping 34.22% in January due to a small glut of inventory, as Europe filled its tanks well above expectations. This coincided with a surprisingly warmer winter so far in the region, abating fears of undersupply after cutting off Russian imports. The petroleum complex finished flat, despite investors pilling back into petroleum futures and options at the fastest rate in more than two years.

The S&P GSCI Gold rose 6.02% in January, as the U.S. dollar continued its steady decline below 2022 highs. A demand for real assets and one of the strongest recent readings of global central bank purchases of the precious metal led market participants to position bullishly in gold. As a store of value in times of asset price decline, gold has historically performed well when other stores of value have deteriorated. In prior times of high and rising inflation, gold tended to lag other inflation-sensitive assets, and this time it seems to be no different.

The S&P GSCI Agriculture finished the month up 1.18%, with softs outperforming, while only wheat lagged. While wheat prices have dropped in the U.S., they rose to a multi-year high in India due to continued tight supply, as the harvest shrunk due to severe heat waves and higher export demand amid the Russia-Ukraine conflict.

Within the S&P GSCI Livestock sector, lean hogs underperformed dramatically, down. Similar to other commodity starts this year, this was a reversal from last year’s performance.

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