Are Commodity Prices On The Verge of Another Major Breakout?
Commodity Markets Fundamental Analysis
As we head into the final stretch of May and into the final month of the second quarter – Rapidly Surging Inflation, The Global Energy Shock, EV Revolution and Global Food Crisis are now emerging as the four biggest and most explosive macro themes driving the Commodities Supercycle.
In the U.S, inflation is rising at its fastest pace in 41-years. In Australia, Canada and Europe inflation is at its highest level in 30-years. While in the UK inflation is now running at 9% – the highest level since 1982 and still accelerating.
If inflation continues to surge at the current pace across the world, then we’re only months away from a return to double-digit inflation on the same scale last seen in the 1970s.
As traders very well know – every 1% rise in inflation, ultimately equates to a 10% spike in Commodity prices.
With inflation now running between 8-9% across many of the world’s major economies – it comes as no surprise that a total of 27 Commodities ranging from the metals, energies to soft commodities have tallied up astronomical double to triple digit gains, already within the first 5 month of 2022.
And this is just the beginning!
Elsewhere, the Global Energy Shock that is unfolding day by day could be one for the record books.
Last week, the energy markets took centre stage with Natural Gas prices surging back to all-time highs. Natural Gas price have now tripled since January – rallying from just under $3.50 to a current high of $8.54 – notching up a whopping gain of over 144%, so far this year.
The spectacular surge in prices has prompted traders to increase bullish calls for prices to soar further and hit new record highs by summer.
Another major theme of the Commodity Supercycle is the Global Food Crisis, which has positioned agriculture commodities as one of the hottest asset classes of 2022.
Since the days of the pandemic, farmers have faced a myriad of challenges including fertilizer shortages, drought and adverse weather, along with supply chain constraints and rising fuel prices cutting into transportation costs. Now the war in Ukraine has only exacerbated problems – sending agriculture prices across the board from Corn, Coffee, Soybean, Sugar, Wheat, Cotton to Lumber skyrocketing to multi-year and all-time record highs.
According to The World Bank – agriculture commodity prices could still surge another 60% this year from current levels and remain elevated well into 2024.
Last but not least is the EV and Green Energy Revolution. The switch towards a greener world is creating fresh demand for metals such as Aluminium, Copper, Cobalt, Nickel, Lithium, Platinum, Palladium, Uranium and Rare Earth metals.
As demand surges and the world needs more commodities and lots of them – there seems to be one big problem! Global supply is shrinking at a record pace off the back of a “triple deficit” – low inventories, low spare capacity and low investment.
The cumulative effects of these crises is fuelling an unstoppable Commodity Supercycle sending everything from the metals, energies to agriculture markets skyrocketing and positioning the entire sector as one of the most lucrative asset classes of this year, if not this decade.
A long list of leading Wall Street banks from Goldman Sachs, JPMorgan to Bank of America have described commodities as their “preferred asset class over the next decade”. This month, Warren Buffett, also joined that list – revealing that his biggest investment ever is currently riding on the Commodities Supercycle.
In the words of Warren Buffett, “the Commodity markets right now, represent one of the greatest generational opportunities of our lifetime, not to be missed.”
All in all, the evidence is mounting that a new Commodity Supercycle is underway. Whichever way you look at it, the case for Commodities in a well-diversified portfolio has never been more obvious than it is right now!
Commodity Report Video for 23 – 27 May 2022
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