ETF Securities Research Blog

A mixed outlook for commodities in 2018

Commodities have enjoyed a great start to 2018, from the low point mid-December they have rallied 6.5%, the performance has been broad-based too, driven not only by the Iran issues inflating the oil price but a rally in industrial/precious metals and agriculture.

We are wary of some who are interpreting this as being a positive sign for broad commodities this year. Commodities as an asset class are a very heterogeneous group and we expect varied performance from each. So to start the year we thought we would provide a brief summary of our views.

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OPEC-rally likely to be short-lived

OPEC together with its non-OPEC partners today decided to extend their production curbs to the end of 2018. With only luke-warm support from Russia heading into the meeting, doubts had formed earlier in the week as to whether the cartel will be able to pull it off.
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Is Bitcoin a reversion to the gold standard?

“We have gold because we cannot trust governments.” President Herbert Hoover famously commented. Many investors are buying bitcoin for precisely this reason and feel that central bank intervention is devaluing fiat currencies. Others invest because the potential widespread acceptance and usability of Bitcoin will see prices rise over time.

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Is dovishness dead at the Fed?

Economists are notorious for sitting on the fence and Federal Reserve (Fed) Chair Yellen is no different: her latest speech spent part of the time focussing on the possibility that the Fed underestimated the weakness of the price and labour market dynamics and the other part highlighting that policy shouldn’t move too slowly to offset potential inflation pressure. However, the more hawkish tone of Chair Yellen’s comments underpinned a rise in bond yields and the US Dollar (USD): two trends which we expect to continue.

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