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Vaccine breakthroughs lift commodities to 6-month high in November

Commodity futures climbed to a six-month high in November amid a series of COVID-19 vaccine breakthroughs and growing clarity on the outcome of the U.S. presidential election.

The S&P GSCI index, which tracks futures for 24 raw materials, grew 13.2% on the month following a 2.7% decline in October, staging its best monthly performance since May.

Energy futures led the increase as positive vaccine news fueled hopes for renewed demand. The petroleum index climbed 26.0%, trimming its year-to-date loss to nearly 28%.

Pfizer Inc. and BioNTech SE's COVID-19 inoculation was granted temporary use authorization in the U.K. on Dec. 2 as the companies awaited similar approvals in the U.S. and Europe. Another vaccine manufacturer, Moderna Inc., is seeking emergency use authorization in the U.S., while a vaccine being developed by the U.K.'s AstraZeneca PLC and the University of Oxford demonstrated 70% effectiveness in an interim analysis.

"Should real demand start to pick up in aftermath of the vaccine roll-out, demand growth could overtake supply recovery and lead to meaningful inventory drawdowns," according to a Nov. 9 ING note from a team led by Chris Turner, global head of markets and regional head of research for U.K. and central and Eastern Europe.

"This will lead to a more bullish oil outlook in the medium to longer term."

OPEC and its allies failed to reach an agreement on output quotas during their Nov. 30 meeting, with further talks on oil production due to resume Dec. 3.

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Industrial metals gained more than 11%, driven by a nearly 14% surge in lead futures, amid greater political clarity in the U.S. after the Nov. 3 presidential election and hopes that future stimulus measures will bolster demand for industrial commodities such as iron and steel.

Copper, zinc and aluminum also registered double-digit monthly increases, while nickel rose nearly 6%.

A sustained economic recovery underpinned by positive manufacturing data from China, the world's top consumer of metals, buoyed expectations of strong demand for industrial metals.

Gold takes a backseat

Precious metals' losses grew as risk-on sentiment drove investors to equities and cooled appetite for safe-haven assets such as gold.

The yellow metal declined 5.3% from October amid heightened vaccine optimism and President-elect Joe Biden's nomination of former Fed chair Janet Yellen as Treasury secretary, trimming gold's year-to-date gain to 16.9% from more than 23% in the first 10 months of 2020.

That said, analysts remained positive on the outlook for gold amid prospects of a rise in inflation as the global recovery accelerates. The metal is traditionally seen as an inflation hedge.

Bart Melek, head of commodity strategy at TD Securities, wrote Nov. 24 that the metal is still on track to break above $2,000 per ounce over the next six months or so, but the road to achieving that will be a bumpy one.

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Agriculture commodities extended their rally, with cocoa futures surging about 20% as chocolate and candy producer The Hershey Co. reportedly bought cocoa beans on the ICE Futures U.S. exchange instead of purchasing directly from traders.

Ole Hansen, head of commodity strategy at Saxo Bank, attributed the sector's rally to weather concerns and strong export demand.

"The agriculture sector may see upside price risks as weather problems extend into the new year, not least due to the ongoing La Nina weather pattern which is already causing problems for growers in South America," Hansen said in a Nov. 26 note.

Livestock futures also advanced, led by a 5.2% rise in feeder cattle prices.