When it comes to commodities, it is usually about cycles. You can’t grow a field of wheat overnight, and it takes years to set up a mine. As such, investing in the energy or metal markets is more of a long-term endeavour and we have seen trends that can last for many years. The last commodity super-cycle started in 2003 and ended rather abruptly in 2008, but not before copper rose 500% and oil went all the way to $150, which back then was a lot of money.
After the crash, came the era of easy money. At first, prices rose, but then gradually declined as equities and bonds were the only game in town. It wasn’t really until covid and the obliteration of the global supply chain that things in base metals and agricultural products got interesting again. Then Russia invaded Ukraine, and it was literally like pouring oil on the fire. The question is, are we now on the verge of the next big trend in commodity prices?
With a rising population, finite resources, and sustained geo-political risks all the ingredients seem to be in place. The problem is volatility. Unlike, investing in major equity benchmarks where a correction of 10% is big news, Lumber or Nickel can move 20% in a day. It also costs money to store and insure commodities. As such, if you are going to buy and hold for the long term, best to stick to the miners or producers, and try not to look at your portfolio every day.