Commodities hit highest since 2013 amid inflation concern

Hedge funds pile into asset class amid booming investor appetite for everything from oil to corn

NEW YORK • Commodities rose to their highest in almost eight years amid booming investor appetite for everything from oil to corn.

Hedge funds have piled into what has become the biggest bullish wager on the asset class in at least a decade, a collective bet that government stimulus plus near-zero interest rates will fuel demand, generate inflation and further weaken the US dollar as the economy rebounds from the pandemic.

The Bloomberg Commodity Spot Index, which tracks price movements for 23 raw materials, rose 1.6 per cent on Monday to its highest since March 2013. The gauge has gained 67 per cent since reaching a four-year low last March.

The day's gains were helped by copper, which rose above US$9,000 a metric ton for the first time in nine years. Oil jumped on speculation global supplies are rapidly tightening, while coffee and sugar advanced.

"Folks who have really ignored commodities for quite a long time are now starting to get positioned," said TD Securities head of commodity strategy Bart Melek. "The implication is that this could go on for a bit. It's very much a function of expectations of scarcity."

JPMorgan Chase said earlier this month that commodities appear to have begun a new supercycle - an extended period during which prices are well above their long-run trend. That echoes similar comments from others including Goldman Sachs Group. Commodities have seen four comparable cycles over the past 100 years.

The asset class is typically seen as a good hedge against inflation, which has recently become more of a concern among investors. The commodities rally will be a story of a "roaring 20s" post-pandemic economic recovery as well as ultra-loose monetary and fiscal policies, JPMorgan analysts said on Feb 10.

Commodities may also jump as an unintended consequence of the fight against climate change, which threatens to constrain oil supplies while boosting demand for metals needed to build renewable energy infrastructure and manufacture electric vehicles.

Copper is surging amid a broad rally in metals from iron ore to nickel. The bellwether commodity has doubled since a nadir in March, also boosted by rapidly tightening physical markets and prospects for rebounding economic growth.

"The mega-trends that we see playing out around global population growth, the electrification thematic and the energy transition, all of these bode well for commodities demand over the medium to long term," Mr Mike Henry, the chief executive officer of mining giant BHP Group, said last week.

Commodities swings have huge impact on cost of living since they can encompass the price of fuels, power, food and construction projects. They also help shape terms of trade, exchange rates and even the politics of commodity-dependent nations like Canada, Brazil and Venezuela.

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A version of this article appeared in the print edition of The Straits Times on February 24, 2021, with the headline 'Commodities hit highest since 2013 amid inflation concern'. Subscribe