Commodities Up 37% in 2021

The S&P GSCI Excess Return* commodity index rose 37% in 2021. The Bloomberg Commodity Excess Return Index rose 27%. Excess Return indices are more representative of commodity prices than the more widely distributed "Total Return" indices, which add T-Bill interest. The chart below shows performance of $1000 as of 12/31/2020. 

GSCI ER = S&P GSCI Excess Return Commodity Index Source: S&P
BCOM ER = Bloomberg Excess Return Commodity Index Source: Bloomberg

*Unlike Total Return indices, Excess Return indices have no futures collateral interest. 

Sectors

The GSCI return was bolstered by its overweighting in energy as the GSCI energy index was rose 53% in 2021. The relatively lower return of the Bloomberg index is due to its more balanced and, in my opinion, more representative weighting of energy, metals and agriculture.  While energy was the top gainer, ags had a good showing as well. Oddly enough, the so-called "pure commodities" gold and silver were DOWN in 2021. 

Is Bitcoin the new gold? Bitcoin/Crypto was up 57% to 163% depending on who is reporting.

Index and sector returns are shown below.

Long Term Commodity Index

While 2021 finally broke the 10 year commodity bear market, the larger picture has a way to go. Below is the chart for our referenced Bloomberg Commodity Excess Return Index since inception in 1991. Priced at 100.0000 on the 1/2/1991 inception date and closing 12/31/2021 at 99.1694, the totality of the now thirty year record is questionable at best. 

Note the more widely published "Total Returns" are higher than the excess returns, they include T-Bill interest on top of commodity returns. I also consider the Bloomberg to be a far better representation of the commodity market because of its more balanced weightings. Both indexes, though, suffer from too frequent rolling of futures components. 

Outlook

While commodities have had a good year in 2021, the long-term picture shows only a small uptick. There may be room for a more substantial recovery in the year to come. 

Disclaimer: Posts are for education only, may be subject to change without notice, and, while prepared with care, may be subject to omissions and errors. Send request to gdrahal@outlook.com to follow this blog and for additional information. 

© 2021 George Rahal.