RESUMING THE COMMODITY SUPERCYCLE

Investing your money into commodities has been the go-to strategy in the financial markets. Up until the June '22 equities bottom, commodities were outperforming virtually everything and everyone. No surprise considering the flourishing economic activity. Commodities have experienced a slight decline, largely influenced by the assertive measures taken by central banks. These aggressive rate hikes might be coming to an end though and that could mean commodities resuming their journey in this potential supercycle.

Seeking Alpha had an incredibly useful chart back in 2022 explaining the technical aspect of the supercycle which you can consult below.

The fundamental details of why this is a possibility are straight forward. Global demand is increasing by the second. Supply constraints and a bunch of geopolitical factors such as the Ukraine war are also a big part of it. It's disrupting supply chains and it will continue to do so for some time. And one of the more important factors? Central banks, who continue to confuse us all with their actions.

Commodities are a peculiar asset class, they don't really get a lot of media coverage and most people have the wrong preconceptions about the commodity market. You can easily benefit from an upturn in commodities through equities or through spot prices. That is how I gain exposure to commodities, no futures contracts, just plain ETFs and stocks of companies active in commodity sectors.

The reason why commodities could be resuming the supercycle is honestly quite simple. Just some basic analysis of the primary trend and where we are currently. The S&P 500 vs Reuters' Commodities Index ratio has been in a primary downtrend which means commodities have outperformed stocks for some time now (or have gone down less in certain cases). That is until recently where stocks have made a significant recovery. The ratio is sitting at an important area though, where it wouldn't be a surprise to finally see commodities outperform again. Especially when you consider that the US Central Bank has recently kept the Federal funds rate flat. Take a look at the chart below.

What do you think? I'm eager to hear your perspective. Are you convinced that we are in the midst of a commodity supercycle? Or do you have reservations? Share your thoughts in the comments below!