Commodity Supercycle Could Bring Many Opportunities (& Problems)
A commodity supercycle could be upon us. This would lead to some negative economic consequences, but also some investment opportunities that could provide immense returns.
A little background first:
Just before the financial crisis of 2008–2009 began, a massive commodity supercycle was well on its way. This is when commodity prices soar because demand is increasing—or is expected to increase.
At that time, we heard calls from analysts that oil could hit $200.00 per barrel, or something close to it.
But as soon as the financial crisis hit, it seemed as if the global economy came to a halt. With this, demand for commodities dropped and their prices plunged. Companies that produced those commodities suffered.
Around 2010–2011, as commodity prices started to drop, many companies in the sector went into survival mode. They pulled back on spending in order to stay in business. In the midst of all this, we saw an immense amount of pessimism and huge cuts in capital expenditures. Exploration suffered, production dropped, and many projects became economically unfeasible.
What’s Happening Now
Fast-forward to now. Over the last year, the world economy has gone through a massive economic crisis. To fight it, governments and central banks have done a lot of “growth spending.” They’ve spent a lot of money to make sure there’s economic growth.
With this, will demand increase globally? It’s possible. And if that’s the case, will we need more commodities?
Remember: companies engaged in exploring, developing, and producing commodities have struggled for years. This could create a situation in which we see some shortages in commodities, which could lead to higher prices.
At the moment, commodity prices are soaring, suggesting that a commodity supercycle could be beginning and that investors are starting to rush in.
- Copper prices are making a multi-year high
- Gold and silver prices are strong
- Oil prices are making solid strides from their lows in 2020
- Lumber prices stand at record highs
- Grain prices are trending higher
And the list goes on.
Dear reader, there are two things I want to point out as a commodity supercycle could be beginning.
- It could lead to inflation. Commodities are basic materials that are used to make the things we consume. If the prices of basic materials go up, it shows up in the prices of the goods we consume. It could hurt your buying power if your income doesn’t grow at the pace of inflation. That could be a problem.
- It could bring investment opportunities. Since the slump in commodity prices began, companies in the commodities business have struggled a lot. Their stock prices have suffered immensely. As the commodity supercycle gets on its way, it’s possible that the shares of commodities companies will find many buyers. Why? These companies have previously been ignored, and the commodities they produce are increasing in value. As such, their stock prices could skyrocket.