Commodities’ New Supercycle could be Coming up

Commodities reached their highest point in years as investors started moving towards their direction.

Prices for commodities like metals and oil have gone up since last year. Investors’ appetite for the asset class grew and that is fueled by concerns that the US government stimulus in combination with almost-zero interest rates could increase demand which in return could cause inflation and weaken the U.S. dollar as the economy tries to recover from the pandemic.

More and more investors who previously did not invest in commodities started getting positioned and that is to hedge their investments against potential inflation. According to some market analysts we may be at the verge of a new commodities supercycle — a prolonged period of time during which the prices of assets rise above their long-run trends. They believe that commodities could be at the helm of a post-pandemic economic recovery and are likening the situation to the “roaring 20s” — a period of economic prosperity in the U.S. following World War I.

Another factor that could boost commodities is global responses to climate change. The energy transition could cause a significant drop in oil supplies and an increase in demand for metals used to manufacture renewable energy infrastructure, electric batteries and vehicles. Experts argue that the trends associated with global population growth and green energy could fuel medium to long term demand for commodities.

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