Gravity Exists

market briefing

Commodities: Beyond Reflation

December 13, 2021

On the heels of a post-vaccine demand surge, inflation narratives and supply chain disruptions set a bull market for commodities in motion that stretched through the first three quarters of 2021.

This momentum reversed course dramatically in recent weeks. A hawkish shift in messaging from the US Federal Reserve, combined with a sharp decline in oil prices driven by Omicron concerns, triggered a selloff in commodity markets. The Bloomberg Commodity Index has returned 24.65% year-to-date, bringing the total one-year gain to 29.79% — almost 9% lower than the high achieved in October.

Today, Kurt Nelson, CEO of SummerHaven Investment Management, joined Gravity Exists to discuss the recent reversal for commodities and make a bullish long-term case for the asset class based on fundamentals.

Key Points

  • The bullish case for commodity demand extends beyond just monetary inflation.

  • Lingering supply disruptions continue to provide near-term support for commodity prices.

  • Positive fundamental catalysts include US infrastructure legislation, depleted inventories, and evolving new markets.

  • SummerHaven has identified energy industry transformation and climate policy as the most exciting market catalysts for the coming years.

Portfolio Notes

SummerHaven Investment Management is the subadvisor for two diversified commodity ETFs, the United States Commodity Index Fund (USCI) and the smaller USCF Dynamic Commodity Strategy (SDCI). Summerhaven also oversees ETFs tied to copper and gold markets as well as a series of private funds.