Brides, Bureaucrats and Bargaining: Commodities in 2017 – by Liam Denning and Rani Molla (Bloomberg – December 21, 2016)

Barring a Christmas nightmare, investors in commodities will enjoy a gift they haven’t received since 2010: a positive return. A 10 percent gain wouldn’t exactly make 2016 a leap year; the index is still only at roughly half the level where it ended 2010.

Still, a positive number is a positive number. Can it be repeated in 2017?For clues on that, look at where the underlying gains came from this year. The first thing to notice is that the rally has been broad-based.

While livestock and grains are lower this year, they represent less than 30 percent of the index overall — based on proposed weightings for 2017 — and have recovered somewhat in recent months. The second thing is that, of the four groups that are up, three really count: energy, industrial metals and precious metals (sorry, coffee and sugar, 7 percent is just a bit too small).

These three add up to 63 percent of the index and will determine to a large degree whether it ends 2017 in the black, too.BLOOMBERG COMMODITY INDEX GAIN IN 201610%Their fates are all tied to policy choices to a large degree.

Gold is the most obvious candidate on this front. After its initial surge in 2016, gold turned to, well, lead in the second half. Higher prices dampened jewelry demand, and then rising certainty of an increase in U.S. interest rates caused the hot money that had flowed into gold ETFs to start flowing out again.

The pressure of actual or anticipated Fed rate increases isn’t likely to let up, so gold’s fade into year-end could well carry on into 2017.

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