Title: Gold, Silver, Copper, Oil — Why They're ALL Rallying Together | Jim Wiederhold Show: Monetary Matters (host Jack Farley, The Monetary Matters Network) Guest: Jim Wiederhold — Commodity Indices Product Manager, Bloomberg (runs BCOM, the Bloomberg Commodity Index, and BERY, the Bloomberg Enhanced Roll Yield Index; ex-S&P Dow Jones Indices commodities strategist) Date: 2026-08-26 (published) URL: https://youtu.be/9PbTMpA8KD4 Length: ~62:30 (interview ~62 min, including a host-read mid-roll sponsor ad at 22:48–24:38) Note: YouTube auto-captions. Fillers (um/uh/"you know"/stutters/false starts) removed; wording otherwise verbatim — no paraphrase, no reordering, no added words. VERIFIED auto-caption garbles corrected in the body: "Jim Weiderhold / Weirhold" = Jim Wiederhold; "Jake" = Jack (Farley, the host); "Tukrium / Tukream / teum" = Teucrium (the sponsor's ETF family — tickers CORN, WEAT, SOYB, CANE, mis-rendered by the captions as "WA T", "S YB", "CE"); "BNAF" = BloombergNEF; "shredder hummus" / "trader hormuz" / "St. Hormuz" / "straight of Hermuse" / "rate of hormuse" = Strait of Hormuz; "Barry" = BERY (the Bloomberg Enhanced Roll Yield Index — an acronym, not a person); "adno" = ADNOC (Abu Dhabi National Oil Company); "job owning / job warning" = jaw-boning; "sediment" = sentiment; "bare market" = bear market; "El Nino" = El Niño; "ADUM" = AUM; "rule yield / ro yield" = roll yield; "ecom sectors" = BCOM sectors; "Yanvu" = Yanbu (the Red Sea terminus of Saudi Arabia's east–west pipeline); "Bloomer's" = Bloomberg's; "spots asset class" = spot asset class. UNVERIFIED, left exactly as spoken: "Ro" (1 word, host aside at 53:38 — unclear); "covert medies oil flows" (53:38 — probably "Mideast", not confirmed); "Freeriell"-type name garbles do not occur here. NEVER turn an unverified garble into a ticker. IMPORTANT — securities: the Teucrium fund reads (CORN, WEAT, SOYB, CANE) are HOST-READ SPONSOR ADS, not Wiederhold's views, and are excluded from the analysis page's stock table. BCOM and BERY are Bloomberg indices he manages, not tradeable tickers. The only company named and discussed on its merits is Marathon Petroleum (MPC).
00:00 Today's episode is brought to you by the Teucrium Corn Fund, ticker CORN. Let's get into it. Joined today by Jim Wiederhold, commodity indices product manager at Bloomberg. Jim, great to see you. Welcome to Monetary Matters. >> Hey, Jack. Thanks for having me here. >> What's been going on in the commodity complex this year? What's your outlook going forward? I know there's a lot of different drivers.
00:23 I think AI is a very big driver in terms of copper and silver and then maybe natural gas but what [clears throat] what do you think are the big drivers this year >> overall there's just a clear ton of tailwinds for the commodities asset class so not only on the demand side like you said with AI where we need data center buildouts which require a lot of metals power energy to do that but also just general macro themes that are really taking hold this year. They've been in place over
00:56 the last few years. But basically, if you look back to the 2010s, we were in a completely different environment where we had low inflation, low rates, low volatility, a continued globalization theme that basically peaked out a few years ago. So that meant that commodity prices tend to lag and it was kind of a commodities bear market but that has completely flipped its head over the last five years.
01:26 So now we see a deglobalization theme, we have increased costs of doing business everywhere. So especially this year we see big pickup in freight costs. So as soon as the US Iran war started the cost to hire a tanker increased by three to four times or more in certain areas.
01:47 So the cost to actually move goods has picked up and then with also the extreme weather we're seeing we're seeing lower river levels across the world. So there's drought playing out which means that it's even tougher to move some of these goods around just from a physical standpoint not just the cost but yeah the cost of doing business is going up and it's leading to increased cost across commodities.
02:14 So energy was the big mover this year so far and you basically need some form of an energy commodity in order to produce the other commodities as well. So the input cost to production of commodities has gone up and that has just increased. We still have elevated inflation although it's coming down somewhat and commodities they tend to be a diversifier in a portfolio but also they're used as an inflation hedge.
02:43 So people have gone back to the asset class and we're seeing inflows in terms of people putting total return swaps on and inflows into ETFs and it's all just driving more price appreciation across the commodity complex. >> So at the beginning of the year you had a great call. You said that industrial metals like copper, zinc, etc.
03:05 were going to outperform precious metals, gold and then also silver. Why did you make that call and that call has worked out really well? Do you expect that trend to continue? >> The precious metals, gold and silver, they're definitely more scarce just by definition of their name and they did have a nice run over the last two and a half year period.
03:26 Gold tends to do that historically when it goes on these moves higher. It tends to be two and a half three-year period. We saw a big spike in January with gold and silver and it's come off. So there was definitely a pullback in central bank buying at least initially although that's changing with the latest World Gold Council surveys with more expected buying ahead.
03:52 But when we go on these two and a half, three-year periods, historically looking back data going back to 1960, price action tends to spike and then we have some sideways move and potentially consolidation over a few months to even a few years in gold. And then on the industrial metals side, some of them were in a little bit of bear markets over the last few years.
04:15 But copper in particular, it has scarcity. It's the projected demand from the energy transition from renewables, but also data center buildout with AI and the increased productivity that we're going to see with everyone using AI going forward. That just means more need for the raw materials and copper is one of the ones that's used in almost everything that we use electronically.
04:44 It's a conductive and cheaper metal than silver is, which is a little more conductive. But copper, we've also had some of this issues with the tariff announcements and then pullbacks. So people in the US, they imported a ton of copper to try and get ahead of potential tariffs. But now we're seeing issues with the LME copper prices are on the rise now as well because that just happened where we just saw a big move in the increase in backwardation in the LME copper contracts. So now
05:25 there's definite inventory issues in the short term there and it's because it's the global economy. There's been a little bit of a slowdown with the US GDP readings recently. There's little bit of a drop in the retail sales lower than expected. Sentiment's a little bit lower, but overall economic growth is pretty good around the world.
05:48 So we're seeing increased demand consistently. And then also projected more demand going forward. If you look at the move that we are seeing over the last two decades from a historically fossil fuel-based global economy to one that is electrification is the one big piece that's the demand driver for copper.
06:12 But in order to meet that demand, we need to increase supply. And sometimes it takes up to 10 15 years to create a new metal mine from discovery to actually be able to produce. And again, the weather is a big issue. So we have increased incidence of mines being flooded and accidents like this.
06:36 And then that just reduces the amount of supply that we can actually have. >> My understanding of the copper demand supply story is as follows. And I'm curious if you agree or correct me if anything is wrong is that there's a huge demand surge from electric vehicles but particularly the solar and wind and the wiring associated with that.
07:01 Data centers are also a tailwind. I think though that the bull case relies on the demand side but also on the supply side because like in 2000 we had a huge demand surge from China and basically building tons of buildings around China. But the supply side actually was very well suited towards that demand growth.
07:23 Whereas now the supply side is a lot more constrained and in particular the amount of mammoth copper mines that are going to come online greenfield is a lot less than was the case 25 years ago. So I'm just curious your view on the supply side and just how many of these large copper mines can come on to meet the demand.
07:48 There's always potential for especially with increased prices and when you have a very high price for any commodity that incentivizes production. So people have planned greenfield mines coming on and especially if there's a huge profitability potential, they're going to do everything they can to make sure that things come online.
08:12 And this is something the copper price was kind of meandering a few years ago and especially in the US we had the whole ESG push obviously that's completely reversed its head now but the rest of the world was still moving more towards renewables so there was increased demand and then all these forecasts of oh there's going to be no supply but some of these companies were able to increase production to meet the demand over those few years and the copper price didn't initially shoot up, but this year we're having some
08:48 some other issues that are compounding the potential supply demand imbalance. So we could see high efficiency from these miners, these companies to meet the demand, but they're being hit with other things, especially this year with the increase of cost of doing business and the weather disruptions and it's just finally coming to a head this year and that's why you're seeing these all-time high prices in copper in particular.
09:23 What is kind of the short-term data on just how much the demand has gone up versus supply has gone up within copper. >> We have a group in Bloomberg called BloombergNEF that publish these things somewhat regularly and yeah there's definitely been a pullback in the US in terms of cancelling wind projects and things like that.
09:48 But the energy mix in Europe has picked up pretty dramatically. I think it might be 50% or more renewable currently. We had a little bit of a supply demand balance projected last year and that came to fruition across most of the major traded metals. But what's interesting this year also is that China, one of the reasons why the price of oil it spiked over $100 a barrel when the conflict started with the US-Iran war but because China's car fleet has really
10:26 moved more towards electric vehicles that helped to allow them to not import as much oil as they possibly would have if this conflict started a few years earlier. So there's definitely been a global increase in demand. I don't have exact figures on how much it has increased, but the competing decrease in demand from the US has — the rest of the world is moving more towards renewables in particular.
11:04 And yeah, now with the higher prices of these metals, there's going to be more incentive for increased mine production and potentially new greenfield mines, but those things, they take years to come online. >> Yeah. And I don't know if the long-term trajectory of renewable energy in the US has really been dislodged, other than the current Trump administration, which obviously is not a fan.
11:28 The president currently said that he's not a fan of offshore wind at all. Like it disturbs the whales, but in terms of the long-term trajectory, I don't know if it's been changed. Would you agree? >> Yeah, I wouldn't think over the long term. It's definitely just been a hiccup in the trend over the long term.
11:46 I would hope, but it definitely creating some of these metals are in and of itself a high emission dirty production in particular. So, but once we're there overall it should help decrease emissions over time and you're seeing better results across the world. But in the US it was a cheaper way to get around and power our economy.
12:22 But with the higher oil prices, people might have more incentive now to move and continue the renewable trend. But yeah, it's just going to be volatile at least until 2028 for now in the US. >> And regardless of who's in the president, one thing that's happening is data centers.
12:46 How much copper do data centers use and how much silver do they use? They use a pretty good amount of both metals. Obviously takes steel and other metals as well. But yeah, copper and silver are the most conductive of the industrial metals and silver is somewhat considered a industrial metal because 60% of its use is industrial in nature.
13:11 So it's a little different than gold in that way. So yeah, they're both two of the metals that have good enough amount of supply out there to meet demand and are very important to wiring, copper wiring and silver, not only in the data centers, but silver's used across the renewable space and solar panels.
13:41 And we just had news about countries and companies have been able to skirt some of the tariffs just because they move like China moved production with their initial supply of silicon wafers to Africa and then they imported it from there and then obviously the US administration didn't like that. So now they're putting tariffs on all solar raw materials.
14:10 So that just is another function of this increase of cost of doing business everywhere and the uncertain nature of tariffs which directly affects especially copper and now silver which it didn't necessarily affect before >> and silver is a very key input into solar panels. It basically is the best element at conductivity by far.
14:37 But with the rise in silver prices over the past 3 years, a lot of the Chinese photovoltaic solar manufacturers have been thrifting and using less silver, moving from silver to copper. Just how serious do you think that is as a bear case for silver or either a bear case or just a non-bull case, neutralizing the bull case? Because I do think a very high percentage of silver demand is from solar.
15:04 >> Yeah. As soon as prices are too high, it doesn't incentivize production of the goods that you're trying to create. And I think at the beginning of the year when silver prices spiked, the average total cost of a panel, 25% of it was silver at the time, which historically was not the case.
15:23 It was usually less than half of that. So yeah, there was some moving over and that happens across metals historically. There's always switching that goes on when something becomes too high in price and it's not justified economically. So there's some of that to copper, but copper is not as conductive as silver.
15:49 So you're having less efficient solar panels if you do that. So that's something to consider. But now the price of copper is just moving higher as well. So you get a slight increase in demand on that side. And then silver is still elevated pricing here, too. So it's interesting to see where things go from here.
16:10 But I think clearly there's going to be an issue with potential new solar tariffs coming. >> What did you think of silver at the absolute peak in late January over $100? What do you think about silver now? Now that it's down at, you know, 65 bucks. >> Yeah, when that happened, it was an exponential move higher that's typically unsustainable.
16:39 If you just look at a chart, it was similar to what happened decades ago when it spiked up to $50. And then this move was clearly something that is unsustainable in the short term and you saw a big pullback after that spike that tends to happen when some of these things get over their heels a little bit.
17:05 So definitely had huge positioning in the futures markets and people were prepared for it and then they took profit at the top. So yeah, there's definitely you still have the demand drivers, but there's less incentive to continue getting long which is what market participants did. They kind of moved away from it and in particular in the last few weeks to months, people have started to get back into gold as opposed to silver.
17:36 So you're seeing positioning pick up in gold and less so in silver and potentially even shorts increasing here. If you look at the latest CFTC positioning data, so clearly people are looking at gold more. They have more of a bullish impetus from the general market participant mix. But yeah, silver little less so here.
18:00 That doesn't mean it — it's a much smaller market and it's way more volatile. So there's always potential for things to spike again, but as of now, people aren't necessarily thinking that's going to happen, at least from the positioning that we see. >> Silver, as you know, Jim, of course, is really interesting because less than half of its production comes from mines that primarily produce silver.
18:26 A lot of the production comes from gold mines where silver is a byproduct, or copper mines where silver is a byproduct, or zinc mines where silver is a byproduct. And as such, the supply reaction is a lot less responsive to a surge in silver. So if I have a mine that's 98% copper and 2% silver, let's just say, and the price of silver 10x's, I'm not necessarily going to increase production because what I care about is the price of copper.
18:49 So that's why you can get these tremendous squeezes. Jim, I'm more bullish personally on silver than I am on gold. And I think gold is really hard to model because I know people are going to hate this and people in the comments going to say, "Jack, what about the debt? The debt is going to go to a hundred trillion and gold is this great hedge because it's a hedge against fiat debasement.
19:11 " And I'm not saying any of that is wrong. I'm just saying that as an investor who attempts to be moderately quantitative, it's really impossible to model because from 1981 to 2000, you had a 19-year bear market in gold even as the fiat currency system and the debt system exploded in terms of growth. So, it's just really not a one-to-one correlation.
19:33 Whereas, I see silver — demand from solar is going to be there no matter what pretty much. Demand from AI data centers is going to be there. Demand for copper is going to be there. Demand for tin is going to be there. It's real and you can kind of put it in your Excel spreadsheet and you can be right or wrong about it but it is modelable whereas gold is just really very difficult and I'm not a bear on gold to be clear but that's just my view.
19:55 >> Yeah, gold the knock is that it's a non-yielding asset and it tends to be a good hedge. It's uncorrelated to other asset classes and clearly whenever there's a dollar weakness that's in favor of gold. So yeah, typically what I've found over the last few decades is as soon as you see big pickups in central bank buying that's usually a pretty good indicator that the price is going to go higher.
20:29 But yeah, like you I like the fundamental story behind the industrial metals and the ones that are industrial adjacent like silver. So unless you're calling for a recession and you think global growth is going to slow down, there's going to be less need for raw materials, I think most of these real asset types that are actually the inputs to our global economy, I think those are the ones that have done well.
20:57 We have the Bloomberg commodity index or BCOM and it's 25 different commodities but it's six sectors and industrial metals is one of the bigger sectors in it and it's up 27% this year so it's having one of the best years it's had and it's not just because gold — gold is actually about flattish compared to the other commodities so energy is obviously a big part of the performance, but all the industrial metals are doing well for the most part.
21:31 Copper is up over about 15% on the year. Aluminum and nickel are doing okay. And then it's because the global growth story is still strong there. So copper is one of the most correlated commodities to PMI readings especially in China and US. So clearly as long as the growth story continues and also we have this slow but continued energy transition with increases in renewables.
22:00 Because I think the cost of solar energy is finally one of the cheapest out of all the alternatives out there for the first time ever. So that's just more potential demand for that. And one interesting anecdote even in places like London, they had — which is historically it's a very cloudy day here in New York.
22:25 So it's very London, but >> they had the most days of sun last year in the history of recording. So, as weather potentially changes, as the climate changes, there's definitely some new pockets of demand that could be coming from areas that historically you would not want to have solar panels in certain places.
22:48 >> Hope you're enjoying today's interview. This episode of Monetary Matters is brought to you by the Teucrium Corn Fund, ticker CORN. If you follow the show, you know we spend a lot of time on macro themes like energy transitions, geopolitical risk, and global food security. Corn sits at the intersection of all three.
23:05 Most people watching the Strait of Hormuz are focused on oil. They should be looking at nitrogen. A third of the world's fertilizer trade passes through that choke point. When that corridor tightens, fertilizer prices react and corn farmers feel it first. Corn is the heaviest nitrogen user in US agriculture, so rising input costs hit their margins quickly.
23:25 The longer-term story could cut the other way, too. If farmers pull back on fertilizer application, yields may come down; if the economics get difficult enough, some may choose to abandon corn and plant something else entirely. Either scenario potentially tightens corn supply, which could be price supportive.
23:43 Bottom line, the pinch on the producer side could become the price story on the commodity side. Teucrium's corn ETF gives you exposure to corn prices. Ticker CORN. Traded on NYSE Arca. Access it through your brokerage account. No futures account required. Teucrium also has a family of agricultural ETFs including the Teucrium Wheat Fund, ticker WEAT, the Teucrium Soybean Fund, ticker SOYB, and the Teucrium Sugar Fund, ticker CANE.
24:08 Head to teucrium.com to learn more. That's teucrium.com. This material must be preceded or accompanied by a prospectus. The prospectus is available at teucrium.com/corn. Investors should carefully consider the investment objectives, risks, charges, and expenses of the fund before investing. The prospectus contains this and other important information.
24:25 Investing involves risk, including the possible loss of principal. Commodities and futures generally are volatile, and instruments whose underlying investments include commodities and futures are not suitable for all investors. Past performance does not guarantee future results. Thanks for listening. Let's get back to today's interview.
24:38 Tell us about central banks buying gold and can you give us a rough trajectory of the tonnage in terms of how much actual gold they're actually buying regardless of the price, not denominated in dollars. I don't care if gold's $1. I don't care if it's $20 million. I just care about how much gold, how many tons.
24:59 Just give us a rough trajectory because I think some charts can be a little bit unintentionally misleading of saying central bank purchases have gone from X to 5x but what they've really captured is the price going 5x-ing. So I think you actually got to look at the actual numbers of the volumes. >> Yeah.
25:18 I think from 2022 to 2024 there was over a thousand tons each year bought of gold. So that was a pretty consistent and drastically increased buying from a few years earlier and that led to the increase in prices over time. And then you have to look at the actual tonnage, not just the price appreciation because it more than doubled since then.
25:44 And but yeah, that latest World Gold Council survey, they've been doing this for at least six or seven years. And this was the highest return answers of over 40% said that they were going to increase their holdings over the next 12 months. So clearly they saw the pullback in prices and they're taking that as a potential buying opportunity again.
26:12 So you're seeing central banks definitely they are price sensitive. So they're not going to buy when things are really going through the roof like they did at the beginning of the year. But now that we had a pullback in prices, a little consolidation, that latest survey is pretty telling that the purchases are going to pick up again after a slight cooling off after prices more than doubled in a two three year period.
26:40 >> Jim, let's turn to the agricultural commodities. What has the price action been there? What is your outlook and what are the key drivers? >> So among the agricultural commodities, if we just look at the grains, the grains are performing well and they're doing it in somewhat of a sector rotation move because they've been a bear market over the last few years, but you're seeing soy and wheat in particular perform very well this year.
27:11 So there's issues with the wheat crop in the US. It was just reported it's rated the lowest it's been since 1970 and prices have moved higher. Chicago wheat, Kansas wheat up over 25% each and that's just another function of the weather issues we're seeing. We're seeing drought in certain areas that are the crop producing areas of the US but also in South America as well.
27:42 And then soybean is up on the year but soybean oil in particular is performing very well this year and on the demand side one of the reasons for that is that there was an increase in the percentage of soybean oil used in the renewable fuel standard mix. So that caused people to chase those moves higher and but yeah, they tend to move in a slightly more volatile manner at times than the other commodities.
28:18 So we could have these moves higher and then a pullback if we get even some better news on the next crop cycle because they're also cyclical. They have seasonality based into their price action throughout the year because there's different crops, winter and summer crops basically. >> It's real seasonality.
28:40 It's not like fake seasonality like S&P sell in May go away. Not that stuff. >> Yeah. >> But see it's weather. So >> interestingly the ags have done well and that the best performers are a) wheat and b) soybean oil but also soybeans, is so interesting to me, Jim, because if you had told me in, let's say, like March 1st, right after the Iran war started, do some research, Jack, and get back to me on which agricultural commodities you're most bullish on because of the fertilizer impact and why. I would have said corn
29:11 because corn just is incredibly needy in terms of its fertilizer demand, where soybean doesn't need that much fertilizer at all. And of course, fertilizer costs spiked in April and May, have come down a little bit. Price of sulfur is still very high and corn hasn't really moved that much which is interesting to me.
29:32 >> Yeah. >> Could be a sleeper. It could be a sleeper. >> Could be. Yeah. With the shutdown of the Strait, one of the first things that spiked was fertilizer prices because a lot of the inputs of fertilizers come from that region. And some interesting anecdotes from some of the farmers in the Midwest are not using their — their costs are increasing.
30:00 So they don't use as good of corn crops. So that could potentially be an issue where future crop yields are not as good because they're cost sensitive themselves. So they're using less fertilizer potentially and then the seeds they use are not as good as higher priced ones that they could be using to plant their fields.
30:24 So that could lead to potential issues and corn price appreciation in the future. If they can continue to do that, if we still have issues with supply disruptions on the fertilizer side, then their input cost increase will mean that it could be potential future reduction in crop yield on the corn front. Definitely. >> Yeah. >> Right.
30:48 And maybe they didn't plant as much corn this year because of the high fertilizer cost. So, we're not going to see it until later. I do think that is a key driver. I also say with corn and soybeans, their production is a lot more concentrated in terms of US and Brazil, whereas there are like 50 countries that make a lot of wheat.
31:08 So a supply shock to corn and soybeans theoretically is a lot easier to happen than to wheat. >> Yeah. You do see some big supply shocks because a lot of the wheat is especially in Europe it's concentrated in the Ukraine region which four years ago big spikes in wheat prices.
31:30 So that's because that conflict — there are issues now with even recently in the last few weeks with some of that crop being transported through the Black Sea with new increased similar to what we're seeing in the Red Sea now and through the Strait of Hormuz where ships are getting attacked.
31:56 We just got some news recently, the last few weeks of that occurring to some commodity tankers in the Black Sea area. So that could lead to increased wheat prices from here potentially. Jim, so if I were to ask you, which commodity are you not necessarily the most bullish on on kind of a delta neutral basis, but the commodity that you think has the highest potential to see some pretty extreme price appreciation, such as we saw natural gas in 2022 or something like that.
32:31 What would it be and why? Yeah, I think at this point obviously the energy complex all those commodities they've already had some pretty significant moves. So it's hard to see some issues continuing there. Crude oil. There's been huge production from the US which at one point because of the direct shut off of the Strait of Hormuz the North American content was producing almost 50% of world supply which hasn't happened in 150 years.
33:11 So I think oil probably has the least incentive to move higher here because everyone's trying to increase production, but the byproducts of oil are the things that we're seeing a lot of scarcity. So we've seen inventory drawdowns and so some of those petroleum products are the ones that I think could still move from here on that front but less bullish on oil at this point.
33:41 There's some of the softs like cocoa, cotton, coffee, those ones are much more volatile typically than the rest of the commodities. So, they have more potential to move higher. Cocoa in particular had a big spike a couple years ago. It's come off. It's down on the year now.
34:06 But there's with this El Niño, there's potential issues with the crop production in Africa, which is a large part of the cocoa producing regions of the world. It's depending on how this continues to play out, we could have some even bigger droughts than we already have on the African continent while we see increased rainfall in other areas.
34:33 So that could lead to things like sugar in India to having ample supply just because the weather would be good. So cocoa could be something that could potentially spike back up again. And then yeah, I do like the industrial metals. I still like that call. Copper's clearly trending higher.
34:59 Aluminum's following. I think those major industrial metals that have the good fundamental demand story of our changing economy and potential scarcity is those are the ones I'm probably more bullish on at this point. But this is also something I talked about that you see sector rotation occur.
35:23 We saw precious metals move first. Energy tends to, but people talk about being in a commodity super cycle and I think we really are and across those BCOM sectors basically everything is up on the year now. Precious metals were the one that were down on the year until recently but yeah every sector is moving higher.
35:44 Obviously energy is the most but you see that happen and then as I said earlier the input of production to other things increases and then the cost of production goes up and then it's just a vicious spiral of increased price appreciation across all the raw materials that basically fuel our global economy. So there's some particular ones like I said, but I think in general it's a good time to have a small piece of allocation to commodities in a portfolio and people tend to do that
36:22 with — people have like a physical gold holding which has performed very well for them. But once these things move, it historically was good to broaden out your exposure to a broad commodities exposure like BCOM. And I wrote about this in a blog where every time gold made a new all-time high over the last six decades.
36:46 If you looked at BCOM, it rose 5% over the next quarter and 15% over the next year. So that would have been a great call if people did that. Took profit at the beginning of the year on gold and then broadened out their exposure. Some people did. Yeah. There's some big pension plans in the US did that.
37:06 Some of them were considering what to do with their gold exposure after it already moved over the last few years and some moved into the broad exposure which has obviously more energy exposure and it was good timing because it happened right before the shut off of supply at the end of February.
37:29 So some people were doing that and still looking at the asset class and continued inflows here. But yeah, BCOM is having one of the best years it's had and there's not just one commodity that's driving that. It's broad-based. >> Yeah. I remember having a dinner with some very shrewd macro hedge fund managers in February and they said, "Yeah, we were bullish on gold and silver, but literally exactly what you said.
37:57 Every time gold goes up, it always broadens out." And they actually were bullish on — so from February selling your gold to buy agriculture commodities and other commodities had worked well. I'm curious why it works, Jim, though. I know we have the back test showing that the history supports it, but why like when the price of gold or silver goes up, what fundamentally supports the commodities trade broadening out to buy soybeans or buy copper? Because on a fundamental basis, if the price of silver goes up,
38:27 it's not like, oh my god, silver went up, so we need more soybeans. Other than just how much of it do you think is the financial channel of people made money on their gold and they're just broadening out versus it is a lot more fundamental on the demand side from the actual use cases and such. I think a portion of it because gold and silver are both they both have investment as part of the reason why people buy them.
38:53 So as the world gets richer because the price of their gold silver allocations increase, they have more spending power and the US is an economy that's over 60% consumer spending and it's kind of like the wealth effect. It just leads to more economic activity overall.
39:15 So more capex spending by businesses by governments more — even though we have huge fiscal deficits across the world, governments have a little bit better chance to create stimulus for the economy which just increased more economic production and then that leads to more demand for raw materials across the board.
39:41 Jim, I actually interviewed a fund manager who invests in agricultural farmland, actually one of the best track records in the space, and he talked a lot about El Niño. So just tell us about El Niño and what crops it is kind of bullish for versus bearish for in terms of the production factor. >> It depends on which region of the world certain crops are grown.
40:06 So when El Niños happen, there's certain areas that get pretty heavy drought situations and then other ones that get excessive rain. So overall, it tends to be there's certain crops like sugar that could potentially have ample supply after this because they have enough [clears throat] rain compared to other areas that are in drought.
40:34 It should potentially create good conditions for US crop with more rain in the crop growing regions of corn, soy, and wheat, which could potentially lead to lower prices. But there's also after drought, there's higher chance of flooding. So even though some of these areas could have better crop growing potential we could also see crop damage from excessive flooding.
41:01 So it's kind of across the grains and the softs that are most directly affected by El Niño. >> Jim, I want to close by asking you about energy, oil, natural gas. You mentioned the refined products already, but first just tell us about the institutional landscape for commodities and how do institutional as well as retail investors get exposure? There obviously there's an ETF but ETFs multiple but in terms of the assets under management those are quite small relative to the actual commodity landscape relative to
41:35 how much assets under management all these folks have, the universe — you mentioned total return swap as well and how do people express the various exposures and then what is interesting to you in terms of where people are increasing versus decreasing exposure. >> Yeah.
41:54 So we've definitely over the last few years, probably two or three years ago, we had a very small global allocation to commodities and that was a function of what I said earlier where the 2010s were kind of a bear market and people removed allocations and also equity markets were just performing very well and fixed income also.
42:14 So the 60/40 portfolio was doing very well during that time. So there was no real need for diversification. But now people are looking at it again because they're concerned about what's happening their portfolio from here and commodities are the most uncorrelated of the major asset classes.
42:33 So people have them in first of all for diversification and they typically put 5 to 10% of an allocation in there. So institutions are coming back to the asset class. Some of the major institutional investors, they do a total return swap with a bank to get exposure and retail investors and others and institutional investors also get exposure through ETFs as well.
43:03 So ETFs, there's certain ones that track BCOM. We have other commodity as well and those have all picked up in assets over the last particularly one year and it's because people have seen there was a consistent gold holding that people had and typically like a physical gold holding but as we talked about the price increased and moved in an exponential manner recently and people took profit and then started to move more towards the broad exposure.
43:37 So you see increases in ETF inflows on ETFs that track BCOM passively and doesn't seem like that's slowing down at any time soon at least in the last few weeks, months. There might have been a chance where people took a little bit of profit when they thought oil prices spiked up and then you kind of got the news that there was a potential truce, but then obviously oil prices are back flirting $80-$90 a barrel and it doesn't seem like there's going to be any incentive from either side to try and slow things down. So
44:17 people are getting that broad exposure again and it's just something that historically performs well when you're in these conducive macroeconomic environments for commodities. So when you have high volatility you have fragmentation, deglobalization, increased costs, increased geopolitical tensions.
44:42 We have a lot more incidents of geopolitical conflicts in the last few years than we did the prior decade. And then also just the increased extreme weather — it all leads to potential supply disruptions which immediately leads to price increase for the commodities asset class because they are a spot asset class as opposed to equities that are more forward-looking.
45:08 So as soon as there's a disruption of supply commodities — I say they like to take the elevator up and the stairs down and that happens when you see those supply shocks. Equities when volatility picks up it tends to be the reverse. Equities tends to have immediate quick drawdowns and then commodities do the opposite.
45:28 So that's another piece of the diversification of commodities because when you have that volatility, when you have drawdowns in equities and fixed income like you saw in 2022, things like BCOM were up 16% on the year and that helped your overall portfolio weather the storm and that's what people are seeing now, especially with the price increases and commodities are outperforming broad equities for the most part as well and definitely fixed income.
45:56 So people are seeing that and they're seeing the one year, three year, five year historical performance and that just leads to more inflows and more people gravitating back to commodities. In terms of Bloomberg indices, is BCOM, the Bloomberg commodity index, is that the majority of where the AUM is tracking, whether it's ETFs or swaps or something else and are the various other products that you work on, are they mainly like for tracking purposes or in terms of are you having assets being linked to
46:33 them as well? >> Yeah. BCOM has history. It started in 1998. It changed hands a few times and Bloomberg got involved back in 2014. So, it has a very extensive long history and it has the majority of assets of all our commodity indices just because of the historical nature and people look to that broad front commodity beta exposure which BCOM represents.
47:01 But we also have other indices that are picking up in popularity like our Bloomberg Enhanced Roll Yield which has about five years of history and that one has really picked up in adoption in the last one and a half years in particular. We have that on the terminal too. We have tickers that show the AUM for overall our commodities indices and then we launched one for BERY which is what we call the Bloomberg Enhanced Roll Yield index.
47:30 So we have one showing >> that AUM as well and you can see a big pick up towards the 10 billion mark in a short period of time and that's because that one it doesn't look just at the front month futures contracts like BCOM does. It broadened out exposure across the curve which gives you what we call a curve premium.
47:53 So you have exposure equally weighted on four futures contracts as opposed to just the front month. And that means BERY's a little bit less volatile as well because when prices move to the upside or the downside, it's typically the front month nearest-dated futures that move the most. But we're broadening out the exposure over time. It tends to have at least over the last five years over 1% more outperformance per year because of just that curve premium.
48:23 And then it also has a carry premium because it looks at the futures curves for each commodity and it tilts the weights according to which ones have better roll yield dynamics. So which ones are more in backwardation as opposed to which ones are more in contango. So the ones that are in contango [clears throat] that typically lead to a negative roll yield if you hold exposure like natural gas tends to be penalized more than BCOM.
48:45 So the weight of natural gas in BERY tends to be half of the weight in BCOM and that also leads to a lower volatility profile. I think BERY is up about 30% this year and then BCOM is 25 to 26%. So already BCOM did outperform in the first quarter when oil price in the front month spiked higher but when oil came off BERY tends to perform well in the aftermath too.
49:17 So that's when it really shines when you have drawdowns in the more volatile front month futures contracts and BERY has lower drawdowns historically just of the nature of the construction. So that's the Bloomberg Enhanced Roll Yield index. Just looking at the weightings of BCOM, Bloomberg commodity index.
49:40 I think that the energy weighting is quote unquote only 30% which I actually think is a lower weighting than I remember maybe from some competing commodity ETFs. Tell us about that philosophy. And the grains are 23%. That's a pretty big weighting. >> Yeah. So it has caps and floors in place.
50:03 So no commodity group can be more than 33%. So that's why you see energy as it is. Some competitors when they in their index construction it's completely based on world production and energy commodities are the most produced commodities. So that's why you see very heavy energy weighting in some of those competitor indices.
50:24 But ours is meant to be more of a diversified approach because we look at not only we look at liquidity in BCOM. So it's initially two-thirds based on the underlying trading volumes liquidity of the futures contracts and then it's one-third based on world production and then from there we put these diversification caps and floors.
50:44 So we have that sector cap and then also no single commodity can be more than 15% of the index when we reconstitute it every year to the target weights. So it's just a more diversified broad approach which tends to be less volatile and actually has similar volatility profile to broad equities if you look over the last few years.
51:05 So actually in certain instances it tends to dip below what you see for the S&P 500 which is pretty interesting because people and for good reason think that commodities are more volatile and individual commodities are but when you put them together in a broad exposure it has a similar volatility profile to equities. >> Jim as promised I want to now ask you about energy.
51:29 I spoke to many great oil analysts who like 99% of the oil world said the following. If this Strait of Hormuz remains closed, the price of oil is going to go to $150, $200, maybe even $300. The price of oil is below $100. The Strait nominally remains closed. What happened? >> So several things happened. Part of it was China immediately was able to hit some of their economic levers and not import as much as they would historically and then you have the jaw-boning from the US administration saying oh it'll be good so basically talking
52:10 prices down at the same time increase in production from North America across Canada US and all those oil producers increased production at a good time and countries were able to use their inventories as well. So the SPR was used. China has plenty of inventory as well.
52:37 So there was no need for all these importers to worry. And then also most recently there's from what we're hearing from the dark fleets that are actually getting through Hormuz, it's now about half of what was lost at the beginning of the year. So 20% was shut off in February, but now it seems like it's only half of that currently.
53:10 So there are oils — oil's getting through, oil products are getting through and then there's also a significant amount that was diverted away from the Strait of Hormuz. Saudi Arabia was able to use their pipeline that was going west and then it's a combination of multiple things so yeah increase in production from other places, diversion and a lot of jaw-boning.
53:38 >> Jaw-boning sounds like an extremely temporary solution, Ro, because you say I'm the president and I say we're doing a deal, the price of oil goes down, production does not go up, more oil doesn't get through. I understand that there is some covert oil going through. I mean literally from Bloomberg News, covert medies oil flows are keeping global prices in check.
54:02 I had reported on X a few months ago, just some of my conversations with sources just about how much oil was getting through and many other people have done work on that. But I mean how is your long-term or even midterm, midterm outlook on oil, 12-month forecast on oil impacted by these solutions? Because okay if the Strait of Hormuz being closed is kind of just a fake on paper thing and actually 80% of the oil is still getting through obviously that's not a bull case
54:35 for oil but if one of the solutions to oil going up is jaw-boning and just announcing deals that aren't going to be actual deals then that sounds like it's just setting up a potential for a very bullish environment for oil over the next 12 months and potentially bearish for the economy and stocks.
54:52 Yeah, it's worked so far and part of that is that market participants that are positioning for this were expecting we're going to get a deal within a few weeks and this has gone on for the last few weeks to months now. So, but people are starting to finally realize there's at least in the last few weeks that there's no deal coming.
55:15 So it could lead to drastically increased prices in the short term, especially if there's even less talks going on between the negotiations and then we see more increased attacks in the Red Sea and then just more of an escalation. And there was another article I read today that within Iran they're getting ready for a prolonged conflict.
55:44 So any talk and jaw-boning, it's worked for the first three months. Oil did come down, but I think as the price continues to go higher now, people are starting to realize that this isn't going to open immediately tomorrow or potentially in the next week or two because both sides are really stubborn at this point and don't want to give up anything.
56:13 So the jaw-boning worked for now but we could get to these $150 $200 a barrel forecasts because I did read one analyst report as soon as this happened that if the Strait of Hormuz stays closed for six months then we should have technically $200 barrel oil according to their model and it's been six months now so we could see continued increased prices.
56:41 It's difficult to tell, but if we see weakening economic data continuing here, so we see less demand, that could potentially save us. But that's just one too — probably too optimistic hope at this point. >> And part of the solution was China drawing down its inventory, so importing less, so oil demand went down. Yeah.
57:10 Do you have a rough sense of just what percentage of pre-war oil traffic is getting through the Strait of Hormuz or being offset through the Yanbu east-west pipeline >> and because I know Bloomberg's got a great tracker of ships but they only track ships that have their transponder on.
57:30 So I wonder if maybe you can give me two answers, like one is just the transponder data and then the second is kind of the shadow fleet, like some of — I spoke to people who were speaking to people who knew that the ships were getting through, like primary sources, and clearly obviously that's been reported elsewhere, just what percentage of the flows do you think are getting through right now compared to January 1? Well, now they say that there's probably 9 million barrels a day going through and
58:03 it's more than half of that is the shadow fleet and that's basically half of what was going through prior in January 1. So clearly it's not disrupted by 20% of the supply anymore. So it's maybe 10% of the global supply. And then in terms of the actual shadow fleet, there was something I read this morning that the tankers that are outside of Oman in the sea.
58:37 Historically, you'd only have like 30 to 40 there, but now there's currently 150 or more. And so clearly there's movement around the Strait of Hormuz. And then they load up there. They turn their transponder back on. I guess in that area but >> clearly >> yeah that's what I heard that basically ADNOC, the UAE oil company, government owned oil company, was transporting a lot of oil through the Strait of Hormuz at night, transponder off, escorted by the US military so either the US military navy was literally going there or they kind of
59:13 just had a guarantee of we'll make sure you're good so that is a meaningful flow is what you're saying >> yeah. And this is just historically commodity traders and commodity companies, they find a way to move goods. So you just see this historically with different metals trades like the start of oil production in Russia and how people find a way and they get very creative and yeah, we've definitely seen that recently.
59:46 >> Yeah. So how would you — okay. So, but what's gone up the most is not oil, but refined products as you said. And so that's why the spread, the crack spread of how much refined products cost relative to oil is extremely high right now. I'm looking at it and it's higher than 2022, which is really something remarkable to say.
1:00:09 Why are crack spreads so high? Do you think that they can stay this high for so long? What's going on here? Part of the reason there is there was plenty of inventory of oil but there was not of the refined products and it takes time and certain specific facilities in different regions to create a refined product to sell from a barrel of oil.
1:00:35 So we are seeing scarcity in the refined products not necessarily in crude oil. It's the derived products basically that did not have the inventory buildup in some of the major economies that we saw that they had enough crude oil to put a backstop to prices. So there was just not enough inventory of the refined products and it takes time to refine oil too.
1:01:08 So yeah, just Marathon Petroleum Company, a corporation, a giant US-based refiner, their quarterly income from operations was $7.3 billion. So not a bad business making $7.3 billion in three months. >> Yeah. Some of these producers, they have also been trying to reduce production or not necessarily increase it, but they've had efficiency gains from just being better at doing what they do.
1:01:42 So it's just yeah, very fortuitous for all these companies. They're doing very well. [snorts] >> Yes. Well, Jim, we will leave it there. Where can people find out more about you and where can people track your work? Give me two answers. If they have a Bloomberg terminal and then if they don't have a Bloomberg terminal. >> Yeah, you can find me on the Bloomberg terminal, Jim Wiederhold.
1:02:04 You can find me on LinkedIn. I post regularly to our Bloomberg Insights page on our website, which you don't need terminal access for. So post pretty regularly to that. And yeah, I'm on LinkedIn or you can find me easily on the terminal. >> Thanks, Jim. Thank you everyone for watching.
1:02:27 Stay tuned with my interview with the agricultural real estate investor. Leave a rating and review for Monetary Matters and Apple Podcast and Spotify. Hope you enjoyed today's episode. Those interested in learning more about the Teucrium Corn Fund, ticker CORN, can find more information in the link in the description. Until next time. Thank you. Just close the [music] door.