A global economy that’s in recovery mode from a COVID-19-induced slowdown, a weakening U.S. dollar, unprecedented monetary stimulus and supply constraints is providing a favorable backdrop for everything from oil to copper to gold.
Signals are appearing that suggest the start of a “sustainable positive feedback loop between commodities, the dollar and emerging-market growth that has driven past structural bull markets,” wrote a Goldman Sachs research team led by economist Jeffrey Currie.
Higher commodity prices add more value to global trade and larger emerging market trade surpluses, they said. Those trade surpluses create credit availability that results in stronger demand and higher prices while at the same time putting pressure on the dollar and supporting prices.
Commodities have suffered through a “super bear cycle” for much of the past decade, said John LaForge, head of real asset strategy at Wells Fargo.
However, West Texas Intermediate crude oil crashing to a record low -$36.73 per barrel in April produced the kind of “watershed event” needed to get investors interested in commodities again, he said.