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HomepageInsights & ResearchWhat's been driving commodity performance, and where do we go from here
The commodity market has received exceptional attention this year. Investors have focused on oil and gasoline price movements for guidance on inflation, geopolitical uncertainty, and supply chain issues. The divergence in performance of commodity subsectors is noteworthy and may illuminate an opportunity.

The Bloomberg Commodity Index1 is up 15.83% year to date through 10/31/20222. This positive performance was driven primarily by the energy sub index, which rose 56.38% during the same period. The energy sector helped to offset the weak components of industrial metals, precious metals, and agricultural softs, which were lower, with -16.65%, -12.58%, and -10.40% returns, respectively. In addition, the grains sub index contributed with returns of +19.66% YTD through 10/31/2022.

Industrial metals performance has been a disappointment

Industrial metals, defined as copper, aluminum, zinc, and nickel, have had positive fundamentals, belying their performance. Generally speaking, inventories are low with zinc inventory at or near a 10-year low3, copper inventory down to all-time lows4, and spare production capacity is limited. Also, mining capital expenditures have been low relative to the 10-year range until recently5, limiting supply increases in the immediate future6. Overwhelmingly poor investor sentiment partially explains the disconnect between positive fundamentals and negative price returns for commodities on expectations of a coming recession.

Rethinking the factors contributing to negative investor sentiment

The negative economic outlook may have been justified based on two significant outstanding issues:

1. The Federal Reserve7 has guided toward dramatically higher interest rates. Policy interest rates have risen by 400bps over the last nine months, one of the steepest rate hikes in history.

2. China, an $18 trillion economy, is still struggling with zero covid policies that have parts of the country on lockdown. In fact, since January 2020, all regions of the globe have not been open and free of covid related economic and mobility restrictions all at once. Three years is a long time to go without live data to judge what level of demand may genuinely exist.

Both of these issues may require a rethink.

Federal Reserve Vice Chair Lael Brainerd speaking at an event on November 14th, said, "I think it will probably be appropriate soon to maintain a slower rate of increases." Brainerd's comments follow Federal Reserve governor Waller's comments over the weekend that the pace of inflation appears to be moderating, although caution is needed to avoid overreaction8.

China's zero Covid policy looks set to ease. At a media briefing last week, China's National Health Commission emphasized a scientific approach, saying some parts of current policy no longer make sense9. In addition, policymakers formally announced a 16-point plan to support the property sector of the economy10.

In China, electric vehicle (EV) sales are booming, topping 4 million plug-in electric vehicles this year through September11. The Chinese auto industry lacks competitive gear and transmission technology needed in internal combustion engines, helping drive government motivation to go electric. In addition, the electricity subsidies and discounts for overnight charging make it cheaper to operate a vehicle on electricity than gasoline, driving consumer motivation to go electric.

Industrial metals may be a more significant contributor to commodity performance in the future

The Inflation Reduction Act of 202212 may help speed the energy transition and raise demand for copper, aluminum, zinc, and nickel used in EVs, wind turbines, solar panels, and the like.

The concurrence of events in China, including zero covid policy easing, property support, rising EV sales, and the US committing capital to the energy transition, may help increase demand for industrial metals. In contrast, industrial metal inventories remain low, and low capital expenditures constrain future supply.

While the leading commodities this year have been energy and grains, other commodity subsectors, such as industrial metals, may lead the way in the future as the macroeconomic negativity abates.

1 Bloomberg Commodity Index - a broadly diversified index of exchange traded commodity futures contracts.
2 Bloomberg
3 Financial Post, October 27, 2022, https://financialpost.com/pmn/business-pmn/zinc-supply-fears-ousted-by-demand-headwinds
4 Markets Insider, October 21, 2022, https://markets.businessinsider.com/news/commodities/copper-supply-outlook-inventory-shortage-5-days-global-demand-trafigura-2022-10
5 Mining Technology, March 1, 2022, https://www.mining-technology.com/comment/mining-capital-expenditure/
6 Stockhead, October 28, 2022, https://stockhead.com.au/resources/why-are-metal-inventories-so-low-and-what-does-it-mean-for-base-metals/
7 Federal Reserve - is the central banking system of the United States of America.
8 CNN Business, November 14, 2022, https://edition.cnn.com/2022/11/14/economy/fed-vice-chair-brainard-inflation
9 Bloomberg UK, November 14, 2022, https://www.bloomberg.com/opinion/articles/2022-11-15/china-s-covid-zero-xi-pivots-fast-will-his-cadres-listen?sref=wdbouC7s&leadSource=uverify%20wall
10 Bloomberg UK, November 12, 2022, https://www.bloomberg.com/news/articles/2022-11-13/china-s-16-point-plan-to-rescue-its-ailing-property-sector?sref=wdbouC7s&leadSource=uverify%20wall
11 Inside EVs, October 27, 2022, https://insideevs.com/news/618698/china-plugin-car-sales-september2022/
12 Inflation Reduction Act of 2022 - aims to curb inflation by reducing the deficit, lowering prescription drug prices, and investing into domestic energy production while promoting clean energy.

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.

ETF001954 11/15/23

US-171122-183920-1

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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.

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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.

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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
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