Commodities see bullish bets led by hopes that government stimulus measures and near zero interest rates will fuel demand.
Commodities hit their highest level in nearly eight years amid a strong investor appetite for everything from oil to corn.
Hedge funds have crammed into what has become the biggest bullish bet on the asset class in at least a decade, a collective bet that government stimulus and near-zero interest rates will fuel demand , generate inflation and further weaken the US dollar as the economy rebounds. the pandemic.
The Bloomberg Commodity Spot Index, which tracks price movements for 23 commodities, rose 1.6% on Monday to reach its highest level since March 2013. The index has already gained 67% from its lowest level in four years in March.
The day’s gains were helped by copper, which topped $ 9,000 per metric tonne for the first time in nine years. Oil also jumped on speculation that global supplies are tightening rapidly, while coffee and sugar have advanced.
“People who have really ignored commodities for quite a long time are now starting to position themselves,” said Bart Melek, chief commodity strategy officer at TD Securities. “The implication is that it could go on for a bit. This is largely a function of expectations of scarcity. “
JPMorgan Chase & Co. said earlier this month that commodities appear to have entered a new supercycle – a prolonged period in which prices are well above their long-term trend. This echoes comments from others, including Goldman Sachs Group Inc. Commodities have gone through four comparable cycles in the past 100 years.
The asset class is generally viewed as a good hedge against inflation, which has recently become a bigger concern for investors. The commodities rally will be the story of a post-pandemic “roaring twenties” economic recovery as well as ultra-flexible monetary and fiscal policies, JPMorgan analysts led by Marko Kolanovic said on February 10.
Commodities can also surge as an unintended consequence of the fight against climate change, which threatens to restrict oil supplies while stimulating demand for the metals needed to build renewable energy infrastructure and manufacture batteries. and electric vehicles, they said.
Copper is booming in a large rally of metals from iron ore to nickel. The flagship industrial product has doubled from a low in March, also boosted by rapidly tightening physical markets and prospects for resuming economic growth.
“The mega-trends that we see unfolding around global population growth, the theme of electrification and energy transition bode well for the demand for raw materials in the medium and long term”, Mike Henry, director General of mining giant BHP Group, said last week in an interview with Bloomberg Television.
Fluctuations in commodities have a huge impact on the cost of living as they can encompass the price of fuels, electricity, food and construction projects. They also help shape the terms of trade, exchange rates, and ultimately the politics of commodity-dependent countries like Canada, Brazil, Chile and Venezuela.