Stocks and bitcoin may be having a stellar year, but one corner of global markets hasn’t shared the good fortune. The Bloomberg Commodities Index has fallen 4.2% in the past month, putting it on course for its sixth year of losses out of seven.
The big question is whether the sell-off is simply a pullback after a frenzied rally or the warning of a weaker economy. One bad sign for commodities going forward is expectations for slower growth in China. The country’s pollution cleanup and a cooling property market will damp investment into 2018, according to a Bloomberg survey last week.
Here are a few takeaways from the commodities sell-off:
Breadth: Energy, metals and agriculture are showing losses. Nickel has been hit hardest recently as the fervor over electric car batteries wore off. Oil traders took profits after the OPEC meeting and oversupply continued to be a headache for grain traders.
China: The world’s third largest economy after the U.S. and the European Union, China is still the big swing factor in commodity markets. Metals traders are starting to price the possibility that slower growth will mean less demand.
Rate Worries: Expectations of higher U.S. interest rates are weighing on gold, with the market treating a December increase as a near certainty.
“The rate hike is now looming and people are suddenly realizing that gold may not be the most attractive long position at the moment,” said David Govett, head of precious metals trading at Marex Spectron Group Ltd. in London. “People’s memories are short and their pockets not so deep.”
OPEC Over: In energy, oil prices have started to slip after the OPEC meeting. Some traders are speculating that OPEC’s decision to keep production cuts may backfire by provoking a fresh wave of U.S. shale-oil production. Prices also declined after American gasoline inventories jumped more than twice the amount expected in the week to Dec. 1 because of a seasonal slow-down in consumption.