Precisely a 12 months in the past, I wrote a weblog put up titled, “A Generational Alternative In Commodities?” arguing the bullish case for issues like copper, treasured metals, oil, and so forth. Since then, the Bloomberg Commodity Spot Index has virtually doubled in worth, main some to consider it might now truly be overvalued.
Nonetheless, commodities have been in a consolidation part for properly over a decade now. The consolidation part seen through the 1960’s lasted nearly so long as the present one; the next breakout increased proved to be a very good inflation sign. The following consolidation part, through the 80’s and 90’s, lasted greater than twice so long as it was marked by a protracted interval of disinflation.
How commodities act going ahead might show, as soon as once more, to be an honest sign in regards to the nature of the present inflationary episode. Contemplating the truth that, regardless of their terrific run over the previous twelve months, commodities costs stay extraordinarily depressed relative to these of economic property, it shouldn’t be shocking to see them escape of their current consolidation vary. Moreover, supply/demand dynamics look like bettering every single day.
A transparent breakout increased within the commodities index would most likely symbolize the dying knell of the Fed’s “transitory” narrative concerning inflation which buyers have purchased hook, line and sinker. As such, it might additionally usher in a wave of investor demand for the type of inflation safety only commodities can offer. Markets are simply reflexive that manner. So it might pay to remain bullish and to maintain a detailed eye on the higher finish of that almost all current consolidation vary.