The third quarter of 2022 was characterized by widespread economic uncertainty and heightened volatility in global markets. Amid ongoing geopolitical tensions in Eastern Europe and Asia, rising debt levels, and slowing growth in China and other major economies, commodity markets were buffeted by waves of selling pressure.
The S&P GSCI, a broad-based benchmark index that tracks the performance of 24 raw materials, registered a 10% QTD loss, with strong performance in agricultural products and punishing losses in a handful of major energy materials. To give you a more specific idea of the biggest winners and losers in the commodities market, we’ve put together a list of some of the best and worst-performing commodities of Q3 2022.
After a prolonged run-up in Q1 and Q2, gasoline futures plummeted in the third quarter as global demand responded to recession fears and a slowdown in the Chinese economy. Despite the 29% QTD decline, investors are confident in a gradual recovery in the gasoline market, with analysts expecting a rebound to a $3.50 to $4.00 per gallon price range in the coming months.
Naphtha, a highly refined liquid hydrocarbon mixture derived from crude oil, posted steep losses in the third quarter as industrial prospects dimmed and demand for petrochemicals weakened. Naphtha futures fell by 22% QTD, with the current price hovering around $627 per ton. However, like gasoline, analysts are optimistic about a recovery in Q4 on the back of seasonally strong demand for gasoline and other transportation fuels.
A season-sensitive market, propane spot prices experienced a steep 16% QTD decline in the third quarter, largely attributable to demand offsets from natural gas adoption and a slowdown in residential heating requirements in the United States.
Despite its reputation as a safe haven asset, gold prices came under pressure in the third quarter, with prices falling by 8% QTD to around $1,660 per ounce. Rising interest rates have weighed on demand for the precious metal, with investors increasingly drawn away from the non-yield-bearing asset toward interesting-bearing treasury bonds. The price suppression has been exacerbated by the recent strengthening in the U.S. dollar. In addition to driving up the price of gold for foreign buyers, a rising U.S. dollar competes with the yellow metal as a safe haven investment.
Despite challenging market conditions, there were a few bright spots in the commodities market in Q3 2022. Chicago Corn futures jumped over 10% QTD off the back of strong demand from food manufacturers and ethanol producers. Demand has been further reinforced by weather-related production losses in the Midwest and South America.
Boasting a 35% QTD rise, natural gas futures were among the top-performing commodities of Q3. This sharp increase can be largely attributed to supply disruptions introduced by the ongoing conflict between Russia (the biggest global exporter of natural gas) and Ukraine. Facing the prospect of a gas cutoff, buyers around the world have scrambled to secure alternative supplies, driving up demand and prices.
Much like natural gas, Newcastle coal futures have experienced a strong rise over Q3, recording a gain of more than 13% QTD. The rally was spurred by strong demand in China and the reopening of several previously offline plants in Germany, Austria, and Italy. With the conflict between Russia and Ukraine expected to continue for the foreseeable future, global demand for coal is likely to remain robust in the months ahead, with analysts expecting new records as Western governments pivot away from Russia’s state-backed natural gas suppliers.
Wheat was another strong Q3 agricultural commodity, notching a gain of more than 7% QTD. While this may seem like a relatively modest return, it’s worth keeping in mind that wheat prices have been on a tear for the past several months, reaching a new record high earlier in the year. With Russia (the largest wheat exporter in the world) saddled with severe economic sanctions, demand for the grain has continued to soar, shoring up support for further gains.
The Bottom Line
With the global economic outlook dominated by concerns around rising inflation and the risk of recession, more and more investors are turning to commodities to diversify their portfolios and hedge against potential losses. With the growing popularity of platforms like easymarkets.com and other global trading solutions, it’s easier than ever for retail investors to buy and sell commodities directly, through their brokerages, or through automated trading systems.
At the end of the day, commodities present a complex and often contradictory set of risks and opportunities. While they offer a degree of insulation from the vicissitudes of global markets, they can also be highly volatile and subject to major price swings. Like any investment, commodities should be approached with caution and a well-defined and diversified investment strategy.