Industrial Commodities Benefit From Hopeful COVID-19 Vaccine News

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November proved to be a good month for risk assets, including commodities. The headline S&P GSCI rose 12.0%, outperforming the S&P 500®, which gained 10.8%. Promising developments on the COVID-19 vaccine front, as well as a benign outcome in the U.S. elections, rewarded risk assets such as energy and industrial metals, while safe-haven assets like gold lost some luster.

The petroleum complex benefited from the prospect of a revival in demand should COVID-19 vaccines allow travel, transport, and other business activities to resume in the first few months of 2021. The S&P GSCI Petroleum gained 25.1%, though the recovery in prices started from a low and pessimistic base, with the index still down 49.9% YTD. On the last day of the month, OPEC+ postponed talks on oil output levels to Dec. 3, 2020, citing a lack of consensus between members regarding the proposed easing of production cuts starting January 2021.

The S&P GSCI Industrial Metals rose 11.1% in November, with all components contributing positive performance. The S&P GSCI Lead paved the way, up 13.6%, hitting a one-year high. This magnitude is unusual, given it is typically the least volatile of the industrial metals, but reflects an appetite for assets sensitive to economic growth prospects. The S&P GSCI Iron Ore rose 14.6% on the back of strong demand from Asia. The other red metal, S&P GSCI Copper, rose 12.8% to its highest level since May 2013. Positive prospects for renewable energy and electric vehicles, encouraging COVID-19 vaccine news, and China’s factory utilization rates’ rapid expansion provided an impetus for the red metal to move higher.

One casualty of the rush to risk in November was gold; the S&P GSCI Gold fell 5.6% and ended the month near a five-month low. While flows into physically backed ETFs remained positive, the 20.3 metric tons added in October was the smallest monthly increase since December 2019, reflecting a cooling in investor interest in safe-haven assets.

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