The Commodity Bull Run Is Gathering Pace

The Black Swan event of early 2020 has led to worldwide government intervention on a scale never seen before. This article will outline the repercussions of this and how this has led to a new supercycle in commodities.
 
Since Covid, the central banks from around the world have been propping up the fallen economies with money printing, furlough schemes and general help for businesses that they have forced to close. Some will never recover and although these have tended to be the smaller businesses, that hasn’t been exclusively the case.
 
All the money printing around the world leads to currency debasement. Now fiat currency has, and always will be a worth less in five years if the money just sits in the bank—especially with the record low interest rates around the world. However if we are to take the US dollar as an example, then there is a strong argument to suggest this one will be hit the most.
 
President Trump didn’t want a strong dollar, his argument was based solely around foreign demand for American products and if the dollar was cheap then their goods and services become more attractive. Nevertheless, pre Covid when an economy such as the US was doing well, owning the dollar was a fairly attractive prospect. Who wouldn’t want to own the currency of a country that is thriving when trading against other currencies. Trump, however didn’t get what he wanted, as when the Covid crisis hit, the US dollar was at its strongest level for years, and then the money printers started, and it plummeted big time.
 
So why is this good for commodities? Well the US dollar is the reserve currency for the world (much to the chagrin of many other countries, not least the Chinese—watch this space) so commodities are priced in US dollars. Oil, gold, silver, natural gas, platinum, copper, corn, cotton, cocoa, soybeans, wheat to name but a few. If the dollar is decreasing in value then all these become cheaper to buy. If the dollar is also predicted to fall over further, then investors will flock to these assets.
 
Since end of Q3 2020 the commodities mentioned above (with the exception of fold – please read my previous article on Basel iii for the explanation behind this) have all surged in value and for very good reason. If an economy has suffered like we have seen, and the governments across the world are spending money they don’t have to kick start the economy, then these assets become useful and attractive for investors. The industrial metals—platinum, silver and copper have been supressed for years, however the environment now exists for these to thrive.
 
If we take platinum, its price hit peak in 2008 at $2252/oz. Today it stands at round $1200/oz. Silver now and its previous highs are similar in percentage terms when you look at its historical price high. Copper is catching up to its highest level ever recorded, and all three have a long, long way to run yet. Commodity cycles usually last 5–7 years. Many believe the signs were there in 2018 for this run to start, meaning the earliest we can expect this run to end is 2023, however given the precarious situation we find ourselves in across the globe, and no green shoots yet for the monetary situation to improve, likely 2025 or beyond.
 
Goldman Sachs (NYSE:GS), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) have been stating for months that we have entered a commodity bull market. The dollar is having a bit of a rebound at the moment due to the yields but don’t let this fool you. Bull markets do not go up in a straight line and even in the very best ones there is always profit taking and dips. The Fed doesn’t want this increase in interest rates and will do all it can to prevent it. The moment they mention yield curve control the dollar will tank and the bull run will gain traction with all macros pointing for a long time yet.