Commodities: the supercycle is over (except for gold)

Commodities have been 2012’s worst-performing asset class. While many stockmarkets have managed double-digit gains, raw-material indices have struggled to stay above zero since the second quarter, says Deutsche Bank. A rapid rebound, moreover, is unlikely.

After years of lagging behind, “supply has caught up with demand in a number of commodity markets”, says Francisco Blanch of Bank of America Merrill Lynch. Copper stockpiles in China have hit a record. Stores of crude oil in the developed world are expected to finish this year at a two-year high. Supplies are likely to “continue to loom over the market” in 2013, says Jerry A DiColo in The Wall Street Journal.

There is no sign of a take off in demand to whittle away stockpiles. Europe and Japan’s downturn, China’s tepid recovery, and historically sub-par American growth hardly adds up to a backdrop “conducive to sustained increases in commodity prices”, says Capital Economics.

The big picture is that the 11-year bull market, or supercycle, in industrial metals and oil looks over. Supply constraints have been overcome, while Chinese growth is slowing and is set to become less commodity-intensive as the government concentrates on spurring consumption rather than investment. Goldman Sachs reckons that commodities will now return to the pattern of the 1980s and 1990s: trending sideways.

The one commodity still in a long-term bull run, however, is gold. Western central banks are printing ever more money, debasing currencies and increasing the risk of a nasty jump in inflation in the next few years. Meanwhile, emerging-market demand is rising as states rattled by the slump in the West diversify their cash reserves. As developing countries grow richer, there will also be a larger pool of gold investors. Deutsche Bank expects the price to average $2,100 an ounce in the second quarter of 2013.


Claim 12 issues of MoneyWeek (plus much more) for just £12!

Let MoneyWeek show you how to profit, whatever the outcome of the upcoming general election.

Start your no-obligation trial today and get up to speed on:

  • The latest shifts in the economy…
  • The ongoing Brexit negotiations…
  • The new tax rules…
  • Trump’s protectionist policies…

Plus lots more.

We’ll show you what it all means for your money.

Plus, the moment you begin your trial, we’ll rush you over THREE free investment reports:

‘How to escape the most hated tax in Britain’: Inheritance tax hits many unsuspecting families. Our report tells how to pass on up to £2m of your money to your family without the taxman getting a look in.

‘How to profit from a Trump presidency’: The election of Donald Trump was a watershed moment for the US economy. This report details the sectors our analysts think will boom from Trump’s premiership, and gives specific investments you can buy to profit.

‘Best shares to watch in 2017’: Includes the transcript from our roundtable panel of investment professionals – and 12 tips they’re currently tipping. The report also analyses key assets, including property, oil and the countries whose stock markets currently offer the most value.