Long-Term Cycles in Commodity Prices
Commodity prices have always moved in cycles. A very interesting chart shows how, over the last 200 years, the commodity price index in the US has had long up and down trends. These are shown as 10-year rolling CAGR (Compound Annual Growth Rate) numbers, and what stands out is the pattern – commodities go through both strong positive and deeply negative phases, often repeating every 50 to 70 years.
Deep Lows Followed by Strong Highs
We can see that after every major fall, like the one in the early 1800s or during the Great Depression in the 1930s, there was a big rally in commodity prices. For example, after the US Civil War, commodity returns jumped to nearly 8%. Then during the Long Depression and again during the 1930s, the returns went negative. But in each case, the downturn was followed by a long upward cycle.
What Happened After the Cold War
Between the 1980s and early 2000s, the world saw a rise in financial markets and asset prices, but commodities stayed mostly flat or moved down. This was the time when global markets became more financialized – money flowed into stocks, bonds, and other financial products instead of physical assets. As a result, commodities lost their shine, and their prices stayed low.
The Cycle May Have Turned Again
In recent years, there are signs that the cycle has turned again. After decades of poor returns, commodity prices have started inching up. Some experts now believe we may be entering a long upward cycle for commodities, just like what happened after previous lows. This new cycle could last until around 2045. If that happens, it would mean 20–25 years of better returns from the commodity space.
Why It Matters for Investors
This doesn’t only apply to raw materials. Investors can take exposure to commodities through stocks of companies like Hindustan Copper, Vedanta, or other metal and mining firms. Allocating money to gold, silver, or even agriculture-based companies could also be ways to benefit. The idea is simple: when commodity prices go up, companies in this sector tend to do well.
A Key Shift to Watch
For the last two decades, while central banks have printed huge amounts of money and financial markets have gone up, crude oil and many other commodities have not moved much. But if this new long-term cycle plays out, commodities could become more important again. And this might be the time to slowly start building exposure. Let us know your thoughts on this.
On The Momentum Podcast this week
In Episode 2 of The Momentum Podcast, Rajnish, a seasoned investor from Pune, shares his shift from traditional investing to momentum strategies. He talks about avoiding costly mistakes, the real estate vs equity debate, and his approach to gold investing. A must-listen for young investors! Now streaming.
