Commodity prices have reached new all-time highs as global demand intensifies amid ongoing supply constraints.
The Bloomberg Commodity Spot Index, which tracks 23 energy, metals and crop futures contracts, rose 1.1% on Monday (October 4), topping a 2011 record. The index has surged more than 90% since reaching a four-year low in March 2020.
Among the biggest gainers are energy commodities such as natural gas, which has surged amid shortages in both Europe and China that are threatening to spread to other parts of the world. Oil prices jumped to their highest level in almost seven years after OPEC+ decided to maintain a gradual supply increase even as the gas crisis is set to boost demand for crude oil.
Meanwhile, the reopening of major economies has unleashed pent-up demand for transportation fuel and all commodities used in manufacturing. That’s happening at a time when new mining and oil developments have stalled, and bad weather is hurting agricultural exports
Aluminum and copper prices have also surged because of short global supplies, and a drought in Brazil has pushed up the cost of coffee and sugar. Cotton futures last week rose to their highest level in a decade because of poor weather and shipping bottlenecks, driving up costs for clothing around the world.
Persistent fiscal deficits and low interest rates have also made commodities more attractive to investors seeking a hedge against inflation. Some investment banks, including JPMorgan Chase & Co. (NYSE:JPM), have floated the idea that commodities are entering a super cycle, or long-term upward trend.
However, the price increases have already fizzled for some commodities after supply concerns proved overblown. Soybean meal and lumber, which each surged earlier in 2021, have now erased gains for the year. Gold has fallen as central banks signal they’ll reduce stimulus and the dollar strengthens.
