Although equity and cryptocurrency prices began the year in a downward spiral, real assets such as gold, crude oil, and agricultural commodities have more than kept their dollar worth.
Commodities have begun to outperform other assets even before Russia’s invasion of Ukraine caused great concern over energy and raw material shipments from both countries.
This graph compares the prices of WTI crude oil, the Invesco DB Agriculture Fund, gold, the S&P 500, and bitcoin to see how they have done so far in 2022.
Commodities rallied to Start off 2022
Commodities have already risen by double digits in 2022, while practically every other asset class has struggled to maintain its value. Equity indices have continued to fall from their all-time highs established in January of this year, with the S&P 500 down 13.4% from its high.
Despite the fact that the Energy sector of the S&P 500 is up 33.4 percent this year and the Information Technology sector is down 18.9 percent, technology accounts for more than a quarter of the index at 28.1 percent, while Energy accounts for only 3.7 percent. Other speculative tech assets, such as bitcoin and other cryptocurrencies, have also experienced huge losses in 2022, with bitcoin down 16.3% and the whole crypto sector’s market worth down 22.4 percent.
| Asset | 2021 Performance | 2022 Performance YTD |
|---|---|---|
| WTI Crude Oil | +56.4% | +34.4% |
| Invesco DB Agriculture Fund | +22.4% | +10.4% |
| Gold | -3.6% | +6.7% |
| S&P 500 | +26.9% | -12.4% |
| Bitcoin | +59.4% | -16.3% |
Meanwhile, commodities traders have witnessed unprecedented rallies and volatility, particularly in the energy and agricultural sectors. Crude oil is up 34.4 percent in 2022 after hitting $129 a barrel, while the Invesco DB Agriculture fund, which covers wheat, corn, soybeans, and other agricultural commodities, is up 10.4 percent year to date.
As a rate hike looms in 2021, gold recovers its losses.
While metals and energy prices rose in 2021, precious metals such as gold and silver lag behind with negative returns. However, investors have shifted their focus away from speculative growth assets and toward gold, which has historically outperformed other assets during tightening cycles.
As a result of Russia’s invasion of Ukraine, investors have fled to gold, with the yellow metal’s price rising by more than 6% in February, the month of the attack.
As Russia becomes increasingly isolated from commerce with the United States and other Western countries, a new trade system with China based on gold-backed settlements similar to the petroyuan may drive gold prices even higher.
Crude Oil and Wheat Rallies are Fueled by Sanctions and Supply Shocks
Shortly after the United States, the European Union, and the G7 nations announced sanctions against Russia, Russia replied with broad export bans against 48 countries, including the United States and the EU.
Russia is currently one of the world’s largest crude oil exporters, exporting roughly 4.7 million barrels of crude oil per day in 2021 for a total export value of $110 billion.
Agriculture, particularly wheat prices, have risen sharply since the invasion began, as both Russia and Ukraine are major wheat exporters. Wheat prices have risen about 40% in the last two months as a result of the uncertainty surrounding these key agricultural exports, and Russia has thrown gasoline to the fire by imposing a temporary grain export restriction on ex-Soviet countries.
As there has been a significant shift of value towards commodities at the start of 2022, we’ll have to wait and see if these prices stabilize while equities and crypto recover, or if this year marks the start of a new commodity supercycle.
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