July Marks Worst Month for Commodities Since 2012

Despite the summer heat, commodities have been anything but hot. In July, commodities suffered their worst monthly decline since May 2012, as the widely watched commodities index, the S&P GSCI, erased nearly all of its gains on the year with a 5.3 percent drop.

The big drags on the index were energy and agriculture, which each responded to specific drivers on the supply side of the equation, according to Jodie Gunzberg, global head of commodities at S&P Dow Jones Indices.

In the energy markets, Libya resumed exporting crude, which sent prices across the energy spectrum lower on the increase in supply. Meanwhile, agricultural commodities dropped nearly 9 percent, hitting the lowest level in four years as ideal weather conditions improved the supply outlook.

The strengthening U.S. dollar probably did not help matters, either. The U.S. Dollar Index, which compares the dollar to a basket of other currencies, rose 2 percent in July. As the dollar increases in value, commodities typically lose value. But that said, not all commodities were in decline—industrial metals like nickel and zinc had a good month, due to rising demand from China.
And despite the slide, Gunzberg said that there aren’t many reasons to expect that the weakness will continue.

“The important thing is that inventories didn’t build up all of a sudden,” Gunzberg told CNBC.com. “It’s more of a temporary drop from a good crop and what’s happening right now with energy.”

via CNBC

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza