The Standard & Poor’s GSCI gauge of 24 raw materials lost 2.5% this year, as rising supply sent prices plunging for commodities including corn, gold and copper. The MSCI All- Country World Index of equities climbed 16%, and the Bloomberg Treasury Bond Index declined 2.7%.
Gold slumped 27% this year, the first drop since 2000 and the biggest in more than three decades, as some investors lost faith in the metal as a store of value after the U.S. economic recovery gained traction. Global holdings in exchange-traded products backed by bullion tumbled 30% this year to the lowest since March 2010, erasing more than $68.4 billion from the value of the assets.
The Fed is conducting “a very comprehensive review” that may result in limits on bank ownership and trading of physical commodities, Janet Yellen, nominated to succeed central bank Chairman Ben S. Bernanke, said Nov. 14.
In July, the Fed said it’s reconsidering a 2003 decision to grant some lenders permission to expand into raw materials. The Dodd-Frank Act, which seeks to boost transparency after the 2008 financial crisis, imposed stricter limits on bank capital, proprietary trading and rules for swap dealers. The Commodity Futures Trading Commission published guidance on Nov. 14 that allows its derivative swaps regulation to have global reach.
“It’s hard to say the worst has past,” said Tyler Jackson, a Singapore-based executive director at Options Group. “Many changes have not been fully implemented and there could be more in the future.”
There are some signs of rising revenue this year, including in Asia and from growing demand for raw-material finance. Commodity revenue at the Asian units of the top 10 banks rose to $380 million in the first half, from about $350 million a year earlier, according to Coalition.
Revenue growth at Deutsche Bank’s commodity unit in Asia expanded 10% to 20% each year since 2010, and the Frankfurt-based bank expects to boost market share in precious metals and commodity financing, Stuart Smith, a managing director in Singapore, said before today’s announcement.
Financing of industrial metals including copper is a key area, said Smith, whose team started a precious-metals vault service, with a capacity for 200 metric tons of gold in Singapore this year.
ABN Amro Group NV started a desk for structured inventory products in Singapore for commodity financing, the bank said in October. The Amsterdam-based company plans a metals-brokerage business in London and Singapore as early as next year.
Grupo BTG Pactual, the Sao Paulo-based investment bank led by billionaire Andre Esteves, will expand its commodity business to 200 people next year from 120 now, Chief Financial Officer Marcelo Kalim said Nov. 6. The bank, which set up a warehouse unit, is working on a bid for JPMorgan’s physical business, a person with direct knowledge of the matter said last month.
“Any headcount additions will be very focused on key areas for next year, so don’t expect a hiring spree,” said Options Group’s Jackson.