The bulls are back in commodities

By and large, the only people who rejoice when the price of raw materials rise are the people who produce raw materials. And according to Bloomberg, those folks are doing a happy dance these days:

“The broad-based recovery in commodity markets this year has tipped several markets into bull market territory,” Mark Keenan, head of commodities research for Asia at Societe Generale SA in Singapore, said by e-mail. “Overall, sentiment is good but remains cautious, the market is evolving significantly, specifically across the oil markets.”

By general agreement, a bull market is a 20% rise from a low, and commodities have been engulfed in a bear market for nearly four years. The most recent low for the Bloomberg Commodity Index was January 20. It’s still down 50% from its high. So this is a nascent bull market, if it indeed is one.

Typically, rising raw materials prices means — duh — higher prices for stocks of miners. The most egregious is the jump in the price of gold mining stocks: The average equity gold fund is up 68% this year, while natural resources funds are up 10.51%. Broad-based commodities funds are up 7.62%.

It’s also an inflation warning: The price increases for things like steel, oil and zinc pass through the manufacturing chain and ultimately to the consumer. While the Federal Reserve has to be wary of the rotten jobs report Friday, it also has to be aware of the risk of inflation from rising commodity prices.

The Fed is also in a peculiar bind. The next chance to announce a rate hike is during the Democratic convention. After that, the Fed runs the risk of raising interest rates during a presidential election, which will, no doubt, have politicians crying foul. It may be that your best move might be to add a bit of inflation protection to your portfolio, either in the form of Treasury Inflation-Protected Securities (TIPS), or small doses of commodity-sensitive funds.

Other things to watch this week: Not a lot. Fed Chair Janet Yellen speaks today at 12:30, but it’s unlikely she’ll say, “Better refinance that mortgage now, if you know what I mean.” Wall Street is likely to overreact anyway. The biggest number to watch is Friday’s consumer sentiment survey from the University of Michigan, especially consumer’s outlooks for pay hikes.

And take a moment today to remember the day. June 6, 1944 was a very big day for many brave young men.