Last summer, the commodities sector was frozen in a half-decade long bear market with few signs of a thaw in the near future.
Now, it's hot once again, with gold and silver funds set to see record-breaking inflows of cash.
"Precious metals, and gold in particular, have been the most favored commodity sector," according to a recent report from Barclays, which estimated flows into and out of commodity funds worldwide. "So far, 2016 is shaping up to be the best year ever for inflows to this type of product."
You read that correctly: best year ever.
Meanwhile, the sector as a whole showed "the strongest January to July performance since 2009," a period at the height of the financial crisis, according to the report.
In the year through July, investors worldwide poured a total of $51 billion into commodity-focused ETFs and similar investment products, Barclays estimates. The bulk of that total, $28.8 billion went to specialized precious metals funds, like the SPDR Gold Shares ETF (GLD) and the iShares Silver Trust (SLV) , which hold gold and silver bullion respectively.
The move into the sector comes after back-to-back annual declines in commodity prices as the Chinese economy slowed and the U.S. dollar rallied. In September 2011, the Thomson Reuters/CoreCommodity CRB Commodity Index, which tracks the price of materials, energy and foodstuffs, stood at around 338 and then fell steadily to a low around 160 in February this year. It has rebounded somewhat since.
In addition to slowing Chinese growth curbing demand for commodities, the sector was hurt by speculation that the U.S. would begin normalizing interest rates as its economy improved, making fixed-income securities more attractive.
But "the interest-rate outlook has changed dramatically over the past two years," says Jeffrey Christian, managing director at New York specialty consulting firm CPM Group. Now, there's less confidence in rapid increases, which has been good for gold and other raw materials.
The reason the two -- commodities and interest rates -- are related is because lower costs to borrow money tend to keep the dollar weaker against other currencies. Since commodities are typically priced in dollars, the price of materials, energy and grains surges when the U.S. currency weakens.
"People think the bear market is over and the Fed can't raise rates because the economy is weak and there is an election," says Victor Sperandeo, a commodity trading advisor at EAM Partners in Dallas.
He's correct that while the economy is barely treading water, it seems unlikely that the Federal Reserve would choose to raise the cost of borrowing as a divisive presidential election heightens market volatility.
Sperandeo does note, however, that if the Fed opts to boost rates anyway, then it's highly likely the dollar will rally and send commodity prices tumbling.