The Fed says it may taper its purchases of Treasuries and commodities seem like they are reversing the poor performance over the last year. Clearly these two events are not related because less liquidity will create a headwind for commodities; however, if the tapering of Fed activity is a result of stronger growth this may make perfect sense. We may be getting signs of stronger growth along with some unique supply shocks in commodities.
1. Oil price shock form geopolitical risk;
2. Oil supply shock from production cuts in Libya, Nigeria and other producers;
3. A reversal of strong harvest estimates in grains;
4. Destocking in China of metals like copper;
5. Increase in gold demand in emerging markets;
6. Ongoing problems in PMG mining.
The 20% drawdowns in commodities may be coming to an end.
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