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Most individual commodities were already in short supply when 2022 began. Key factors behind this included a supply crunch as consumers shifted spending from services to goods, funded by direct government stimulus into consumers’ bank accounts and a surge in money supply by over 40% since 2019.1 

In addition, by year-end 2021 Europe was four months into an energy crisis with local natural gas prices up 800% in less than a year2  caused by a combination of “just-in-time” purchasing and a global surge in natural gas demand brought on by drought conditions that boosted energy needs for cooling and created shortages in hydropower capacity. Matters worsened in February after Russia’s invasion of Ukraine constrained the supply of several commodities and created even more price pressure. By June, many central banks around the world had enacted hawkish policies to dampen inflation, resulting in a commodity sell-off. But the sell-off was short-lived, and by July and August the commodity markets were marked by undersupply and higher prices. Things changed in September as investors feared that central banks would push rates too far and cause a deep recession, which sent commodities prices lower for the second time in 2022. Since then, central bankers have eased their hawkish language to a degree as inflation appears to have peaked even as it remains elevated.

Where does that leave us on a 2023 outlook?

Agricultural supply growth

According to the National Oceanic and Atmospheric Administration (NOAA) forecast, La Nina will moderate early in 2023, potentially easing drought conditions that have plagued crops in North America and South America for the past three years.3 While that would be good for the supply of corn, wheat, and soybeans, it could mean weaker unit prices ahead for agricultural commodities. Although global weather patterns may allow farms to increase crop yields, the Russia/Ukraine situation may offset the supply uptick especially if supply is constrained in China. However, the La Nina forecast forces us to make agriculture our least-liked sector.

Energy shortages remain

Mother Nature will determine the magnitude of Europe’s energy pain this winter. An unusually cold winter of the magnitude of 2010 would see German natural gas storage depleted as their natural gas storage is only 17% of total annual demand.4 Regardless of winter's severity, the Nord Stream5 1 and 2 pipelines will not help Europe restock gas for next winter, as they appear permanently damaged. The US has several liquified natural gas (LNG) projects underway, which in conjunction with other projects in the Middle East could help fully supply Europe by 2025. Global natural gas markets are scrambling to get by until the large export projects are completed in 2025. Almost any Covid reopening scenario may see global oil markets undersupplied in 2023. Global distillate markets await the completion of large refinery projects in the Middle East and China. Still, we are not fans of pulling oil from the US, shipping it to the Middle East for processing, and then sending it back to the US as gasoline or jet fuel.

Base metals pickup with the economy

Lead will be added to the Bloomberg Industrial Metals Index6 in early January. Lead is used in automotive batteries, including as a secondary power source for most electric vehicles (EVs), and in some large grid-scale batteries as well as E-bike batteries. Lead will join existing index members of copper, aluminum, zinc, and nickel. Over the past 20 years, industrial metals prices have been highly correlated with trailing "total social financing" (TSF)7 in China as the country industrialized. Indeed, more Chinese fiscal stimulus may be on the way. Recently the government has indicated a preference for higher fiscal spending in the immediate future, in addition to continuing support for infrastructure and the property sector. Should this occur, it could signal an uptick in industrial metals demand in combination with the country's reopening from Covid-19 restrictions.

Precious metals remain precious

Silver could also see an uptick in demand amid increased industrial metal usage. The US stopped a shipment of solar panels from China due to Uyghur human rights abuses, contributing to a decline in solar panel installations this year.8 But we expect the decline to reverse in 2023 with an uptick in solar panel installations, which is positive for silver demand. Gold demand from retail investors in India and China has already rebounded. We expect central bank demand for gold reserves to remain at high levels following the 400 tons purchased in the third quarter, which set an all-time quarterly record.9

Two themes could affect commodities generally

1. The Russia/Ukraine conflict will not end soon and it continues to impact exports from both countries. In tandem, these two nations are significant exporters of wheat, barley, natural gas, processed nickel, fertilizers, and seed oils. crude oil/products, palladium/platinum, lumber, refined copper, ammonia, steel, uranium, and titanium as well as aluminum and coal. However, it is difficult to see a path to normalized export levels amid damage to farmland, ports, and international relations.10

2. Historically, when China pivots the world benefits. In response to public protests the government eased intermittent Covid restrictions, which threatened to enter their fourth year, by boosting elderly vaccination rates, removing Covid tracing apps required to enter buildings, and allowing more freedom of movement. This year's “outlook season” was delayed because many banks delayed their 2023 outlooks hoping for more conviction in central bank and economic views.

There is a lot of negativity priced into commodities, but the lingering effects of Covid-related lockdowns and policies have skewed the picture. It is difficult to predict economic output in the best of times, but we have not seen a complete global picture of supply and demand for more than three years. What comes next could be a surprise.

An idea

Including gold, silver, platinum, and palladium within a diversified portfolio may provide exposure to several trends. Palladium is used in automobile pollution control devices. Recent reports indicate that EV demand has fallen due to lower levels of consumer discretionary income, as well as higher interest rates that boost monthly payments on EV vehicles. We may need pollution control devices for hybrid and internal combustion engine (ICE) vehicles for longer than expected. Platinum is used in sterling silver, but it also plays a role in hydrogen fuel cells. Until recently the hydrogen trend has been relatively muted amid talk of other renewables, yet great strides in this area have been made in China. Silver is a critical component of solar panels and is used in a number of industrial processes. Gold is no longer the statutory base of the US dollar system, although it is the key asset that keeps the Federal Reserve11 balance sheet in the black.

Elsewhere, recession fears have caused a crowded trade with investors going long the US dollar. Should recession fears abate, a weaker US dollar could provide a tailwind for commodities generally and precious metals specifically. Physical precious metal funds which hold the metals in bar form in audited vaults help avoid the cost of rolling futures contracts that are often higher for precious metals than other commodities. A fund consisting of gold, silver, platinum, and palladium gives a bit of exposure to cyclical expansion via industrial demand, to renewable energy via hydrogen fuel cell use, to traditional vehicle pollution control, and to a weaker US dollar.

 

1 Bloomberg, US M2 money supply up 41.48% from December 31, 2019 to March 31, 2022. M2 is a measure of the U.S. money stock that includes M1 (currency and coins held by the non-bank public, checkable deposits, and travelers' checks) plus savings deposits (including money market deposit accounts), small time deposits under $100,000, and shares in retail money market mutual funds..
2 Bloomberg: Dutch Natural Gas futures, up 839.07% from January 5, 2021 to December 21, 2021
3 Bloomberg: Nino index 1/1/2020 through 10/31/2022
4 European consumption data via Enerdata in TWh, European storage data via Gas Infrastructure Europe in TWh, October 1, 2021
5 Nordstream is a network of offshore natural gas pipelines in Europe which run under the Baltic Sea from Russia to Germany.
6 The index is a commodity group subindex of the Bloomberg commodity index total return. The index is composed of futures contracts on aluminum, copper, nickel and zinc.
7 Bloomberg: Chinese Total Social financing and Bloomberg Industrial Metals Commodities Index.
8 Wall Street Journal, https://www.reuters.com/world/china/exclusive-us-blocks-more-than-1000-solar-shipments-over-chinese-slave-labor-2022-11-11/
9 Wall Street Journal, https://www.wsj.com/articles/central-banks-have-binged-on-gold-this-year-it-just-isnt-entirely-clear-which-ones-11668106814
10 U.S. Department of Agriculture, Economic Research Service, USDA ERS - Agricultural Markets in Russia and Ukraine
11 Federal Reserve - the central banking system of the United States of America.

IMPORTANT INFORMATION

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.

Trading in commodities entails a substantial risk of loss and is not suitable for all investors.

Diversification does not eliminate the risk of experiencing investment losses.

Prospectuses for Aberdeen Standard Physical Gold Shares ETF, Aberdeen Standard Physical Palladium Shares ETF, Aberdeen Standard Physical Platinum Shares ETF, Aberdeen Standard Physical Precious Metals Basket Shares ETF and Aberdeen Standard Physical Silver Shares ETF

Projections are offered as opinion and are not reflective of potential performance. Projections are not guaranteed and actual events or results may differ materially.

ALPS Distributors, Inc. is the marketing agent.

There are risks associated with investing including possible loss of principal.

ALPS is not affiliated with abrdn.

ETF001968  12/16/23

US-211222-185538-1

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Investors should carefully consider a fund’s investment objectives, risks, fees, charges, and expenses before investing any money. To obtain this and other fund information, please call 866-667-9231 to request a summary prospectus and/or prospectus, or download at www.abrdn.com/us. Please read the summary prospectus and/or prospectus carefully before investing any money.

Aberdeen Fund Distributors, LLC is a wholly owned subsidiary of abrdn Inc. abrdn Inc. is a wholly-owned subsidiary of abrdn plc. abrdn Funds are distributed by Aberdeen Fund Distributors LLC, Member FINRA and SIPC. 1900 Market Street, Suite 200, Philadelphia PA, 19103.

NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE

For ETFs, please call 844-383-7289 or click here to access a prospectus online. Investing involves risk, including possible loss of principal. ETF shares are bought and sold at market price (not NAV) and are not individually redeemed from the Fund.

Important Risks

The abrdn Gold ETF Trust, abrdn Silver ETF Trust, abrdn Precious Metals Basket ETF Trust, abrdn Platinum ETF Trust and abrdn Palladium ETF Trust are not investment companies registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trusts are not subject to the same regulatory requirements as mutual funds. These investments are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility.

Commodities generally are volatile and are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility. Please refer to the prospectus for complete information regarding all risks associated with the Trusts. Shares in the Trusts are not FDIC insured and may lose value and have no bank guarantee.

The value of the Shares relates directly to the value of the precious metal held by the Trust and fluctuations in the price could materially adversely affect investment in the Shares. Several factors may affect the price of precious metals, including:

A change in economic conditions, such as a recession, can adversely affect the price of the precious metal held by the Trust. Some metals are used in a wide range of industrial applications, and an economic downturn could have a negative impact on its demand and, consequently, its price and the price of the Shares;

Investors’ expectations with respect to the rate of inflation;

Currency exchange rates;

Interest rates;

Investment and trading activities of hedge funds and commodity funds; and

Global or regional political, economic or financial events and situations. Should there be an increase in the level of hedge activity of the precious metal held by the trust or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the Shares. Should there be an increase in the level of hedge activity of the precious metal held by the Trusts or producing companies, it could cause a decline in world precious metal prices, adversely affecting the price of the shares.

Also, should the speculative community take a negative view towards the precious metal held by the Trusts, it could cause a decline in prices, negatively impacting the price of the shares. There is a risk that part or all of the Trusts’ physical precious metal could be lost, damaged or stolen. Failure by the Custodian or Sub-Custodian to exercise due care in the safekeeping of the precious metal held by the Trusts could result in a loss to the Trusts.

The Trusts will not insure its precious metals and shareholders cannot be assured that the custodian will maintain adequate insurance or any insurance with respect to the precious metals held by the custodian on behalf of the Trust. Consequently, a loss may be suffered with respect to the Trust’s precious metal that is not covered by insurance.

Commodities generally are volatile and are not suitable for all investors.

Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or "authorized participants" may trade directly with the Trusts, typically in blocks of 25k to 100k shares.

Commodities generally are volatile and are not suitable for all investors. This material must be accompanied or preceded by the prospectus. Carefully consider each Trust’s investment objectives, risk factors, and fees and expenses before investing. Please click here to review the prospectus.

ALPS Distributors, Inc. is the marketing agent for the abrdn Gold ETF Trust, abrdn Silver ETF Trust, abrdn Precious Metals Basket ETF Trust, abrdn Platinum ETF Trust and abrdn Palladium ETF Trust.

ALPS Distributors, Inc. is the distributor for abrdn ETFs.

ALPS Distributors, Inc. is not affiliated with the companies of abrdn.

'40 Act Fund Disclosure:

An investor should consider the investment objectives, risks, charges and expenses of the ETFs carefully before investing. To obtain a prospectus containing this and other important information, call 1-844-383-7289 or visit www.abrdn.com/us/etf. Read the prospectus carefully before investing.

Fund Risk: There are risks associated with investing including possible loss of principal. Commodities generally are volatile and are not suitable for all investors. There can be no assurance that the Fund’s investment objective will be met at any time. The commodities markets and the prices of various commodities may fluctuate widely based on a variety of factors. Because the Fund's performance is linked to the performance of highly volatile commodities, investors should consider purchasing shares of the Fund only as part of an overall diversified portfolio and should be willing to assume the risks of potentially significant fluctuations in the value of the Fund. Actively managed ETFs do not necessarily seek to replicate the performance of a specified index. Actively managed ETFs are subject to risks similar to stocks, including those related to short selling and margin maintenance. The Fund’s return may not match the return of the index.

Through holding of futures, options and options on futures contracts, the Fund may be exposed to (i) losses from margin deposits in the case of bankruptcy of the relevant broker, and (ii) a risk that the relevant position cannot be close out when required at its fundamental value. In pursuing its investment strategy, particularly when rolling futures contracts, the Fund may engage in frequent trading of its portfolio of securities, resulting in a high portfolio turnover rate.
As a "non-diversified" fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of Shares may be more volatile than the values of shares of more diversified funds.

During situations where the cost of any futures contracts for delivery on dates further in the future is higher than those for delivery closer in time, the value of the Fund holding such contracts will decrease over time unless the spot price of that contract increases by the same rate as the rate of the variation in the price of the futures contract. The rate of variation could be quite significant and last for an indeterminate period of time, reducing the value of the Fund.

Changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary are organized, respectively, could result in the inability of the Subsidiary to operate as intended and could negatively affect the Fund and its shareholders.

To the extent the Fund is exposed directly or indirectly to leverage (through investments in commodities futures contracts) the value of that Fund may be more volatile than if no leverage were present.

In order to qualify for the favorable U.S. federal income tax treatment accorded to a regulated investment company ("RIC"), the Fund must derive at least 90% of its gross income in each taxable year from certain categories of income ("qualifying income") and must satisfy certain asset diversification requirements. Certain of the Fund’s investments will not generate income that is qualifying income. The Fund intends to hold such commodity-related investments indirectly, through the Subsidiary. The Fund believes that income from the Subsidiary will be qualifying income because it expects that the Subsidiary will make annual distributions of its earnings and profits. [However, there can be no certainty in this regard, as the Fund has not sought or received an opinion of counsel confirming that the Subsidiary’s operations and resulting distributions would produce qualifying income for the Fund.] If the Fund were to fail to meet the qualifying income test or asset diversification requirements and fail to qualify as a RIC, it would be taxed in the same manner as an ordinary corporation, and distributions to its shareholders would not be deductible by the Fund in computing its taxable income. Investors buy and sell shares on a secondary market (i.e., not directly from the Trust). Only market makers or authorized participants may trade directly with the funds, typically in blocks of 25K to 100K shares.

The abrdn Bloomberg Industrial Metals K-1 Free ETF is new and has limited operating history.

“Bloomberg®” and “Bloomberg Commodity Index Total ReturnSM,” “Bloomberg Commodity Index 3 Month ForwardSM” and “Bloomberg Industrial Metals Subindex Total ReturnSM” are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by abrdn ETFs Advisors LLC. Bloomberg is not affiliated with abrdn ETFs Advisors LLC, and Bloomberg does not approve, endorse, review, or recommend abrdn Bloomberg All Commodity Strategy K-1 Free ETF (BCI), abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF (BCD), and abrdn Bloomberg Industrial Metals K-1 Free ETF (BCIM). Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity Index Total Return, Bloomberg Commodity Index 3 Month Forward” and “Bloomberg Industrial Metals Subindex Total Return".

Please see the current prospectus, www.abrdn.com/us/etf for more information regarding the risk associated with an investment in the Funds.

S&P 500: The S&P 500 Index is the Standard & Poor’s composite index of 500 stocks, a widely recognized, unmanaged index of common stock prices.

Standard Deviation: Standard deviation is a statistical measure of the extent to which returns of an asset vary from its average.

Bloomberg Commodity Index: The Bloomberg Commodity Index (BCOM) is a broadly diversified commodity price index distributed by Bloomberg Indexes.

Discount- A situation when the share price of a fund trades below its net asset value.

Premium- A situation when the share price of a fund trades above its net asset value.

The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market.

Annualized Volatility is a statistical measure of the dispersion of returns for a given security or market index

Beta is a measure of the volatility, or systematic risk, of an individual stock in comparison to the unsystematic risk of the entire market

Sharpe ratio is the average return earned in excess of the risk-free rate per unit of volatility or total risk
NAV or Net Asset Value represents the per share/unit price of the fund on a specific date or time.

All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments there are associated inherent risks. Please obtain and review all financial material carefully before investing.

abrdn offers a variety of products and services intended solely for investors from certain countries or regions. abrdn does not offer these products or services outside their intended countries or regions. Your country of legal residence will determine the products or services that will be available to you. Nothing on this website should be considered a solicitation or offering for sale of any investment product or service to any person in any jurisdiction where such solicitation or offer would be unlawful.

Persons residing outside the United States are invited to visit our global website for more information about products and services available to non-U.S. investors.

Alternative investments involve specific risks that may be greater than those associated with traditional investments; are not suitable for all clients; and intended for experienced and sophisticated investors who meet specific suitability requirements and are willing to bear the high economic risks of the investment. Investments of this type may engage in speculative investment practices; carry additional risk of loss, including possibility of partial or total loss of invested capital, due to the nature and volatility of the underlying investments; and are generally considered to be illiquid due to restrictive repurchase procedures. These investments may also involve different regulatory and reporting requirements, complex tax structures, and delays in distributing important tax information.

Diversification does not ensure a profit or protect against a loss in a declining market.

Among the risks presented by private equity investing are substantial commitment requirements, credit risk, lack of liquidity, fees associated with investing, lack of control over investments and or governance, investment risks, leverage and tax considerations. Private equity investments can also be affected by environmental conditions / events, political and economic developments, taxes and other government regulations

Property investments may carry additional risk of loss due to the nature and volatility of the underlying investments and may not be available for investment by investors unless the investor meets certain regulatory requirements. In considering the prior performance information contained herein, potential investors should bear in mind that past performance is not necessarily indicative of future results, and there can be no assurance that such investments will achieve comparable results.


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