Summary of Key Points
This article reviews the three major upward cycles of global commodities since World War II (1971-1980, 2000-2008, and 2020 to the present), focusing on the unique characteristics of the current cycle: its deep linkage with global inflation, its abnormal synchronization with the trend of the US dollar, high levels of geopolitical and policy uncertainty, and the structural divergence in commodity prices (with precious metals and industrial metals leading the gains). The article concludes that this upward cycle is still ongoing and will continue to be driven by rising metal prices.
I. The Three Upward Cycles: From the Oil Crisis to Inflation Caused by the Pandemic
Commodity prices do not rise continuously; instead, there are "long cycles" of sustained increases every few decades, each driven by different factors:
- First Cycle (1971-1980): Currency Collapse + Oil Crisis
In 1971, the US dollar decoupled from gold (the collapse of the Bretton Woods system), leading to a decline in the value of the dollar. Gold prices soared from $35 per ounce. Coupled with two oil crises in 1973 and 1978 (when Middle Eastern countries reduced production and raised prices), oil prices exploded. Economies in Europe and America experienced slow growth due to the shortage of cheap oil and high inflation, until the Iran-Iraq War broke out in 1980, after which commodity prices peaked and began to fall.
- Second Cycle (2000-2008): Chinese Demand + Dollar Depreciation + Insufficient Capacity
In 2001, China joined the WTO and became the "world's factory," leading to a surge in demand for raw materials such as steel and copper. At the same time, the dollar depreciated (making commodities more expensive when priced in dollars). Additionally, after a bear market in commodities over the previous two decades, mining companies cut back on exploration funding, and production capacity fell short of demand, driving up prices. The 9/11 attacks and the Iraq War also contributed to the increase in the prices of gold and oil as safe-haven assets.
- Third Cycle (2020 to the Present): Pandemic Inflation + Geopolitical Conflicts + Industrial Upgrades
The pandemic caused global production and logistics disruptions, and governments printed money to stimulate the economy, leading to inflation. Subsequent geopolitical events such as the Russia-Ukraine war and the Palestinian-Israeli conflict affected the supply of energy and agricultural products. The growing demand for certain metals in new industries (e.g., copper and aluminum for electric vehicles and chips for AI) has sustained this cycle.
II. The Abnormal Phenomenon: Rising Commodity Prices Despite Rising US Dollar Interest Rates
In the past, there was an inverse relationship between the US dollar and commodity prices: when the dollar rose, commodity prices fell (because they became more expensive in dollars); when the dollar fell, commodity prices rose. However, this time is different:
- US inflation has reached record levels in recent decades (the average monthly CPI increase since 2020 is 60% higher than during the 2000-2008 period). The Federal Reserve has raised interest rates aggressively to curb inflation, which should have strengthened the dollar and caused commodity prices to fall. But in reality, commodity prices have continued to rise.
- The reason is that inflation itself has increased the "cost of production" for commodities (e.g., higher labor and equipment costs for oil production), coupled with supply shortages (due to geopolitical conflicts) and special demand (from new energy sectors), which outweigh the suppressive effect of rising US dollar interest rates.
III. Geopolitics and Policy: Uncertainty Fuels Prices
There are more "unstable factors" globally now than before, directly driving up commodity prices:
- Geopolitical Conflicts: The Russia-Ukraine war has disrupted European natural gas supplies, the Palestinian-Israeli conflict threatens Middle Eastern oil production, and the Red Sea crisis has blocked global trade routes, all of which have increased the supply of energy and agricultural products. At the same time, investors are buying gold as a safe-haven asset, driving up its price.
- Policy Uncertainty: The China-US trade war and the unpredictable trade policies during the Trump era have made companies hesitant to expand production capacity, increasing supply chain costs and making it harder for commodity prices to fall.
Data shows that the geopolitical risk index has been 15% higher since 2020 than the average over the past 20 years.
IV. Structural Divergence: Precious Metals and Industrial Metals Lead the Way
Not all commodities have risen in this cycle; some have increased, while others have remained stable or decreased:
- 2020-2022: General increase in prices due to the pandemic-induced global shortage of goods. Energy and metal prices rose by 165%, and non-agricultural and non-mining commodity prices (including energy and metals) rose by 65%.
- 2022 to the Present: Divergence: Energy prices (such as crude oil) and agricultural product prices have fluctuated and fallen, while prices of metals like gold, copper, and aluminum have continued to rise. The reasons include:
- Gold: Amid the trend of de-dollarization, central banks around the world are buying gold (e.g., China and Russia), and there is high demand for it as a safe-haven asset.
- Industrial Metals: The demand for metals in new energy sectors (e.g., copper and aluminum for electric vehicles and silicon for solar power) and the AI industry has surged, even despite sluggish manufacturing activity in China and the US (with PMI levels below the boom-bust threshold).
V. Future Outlook: The Upward Cycle Will Continue, with Metals Leading the Gain
The article suggests that this cycle is not over, based on three key factors:
- Supply: Commodity prices have been volatile in recent years, and companies are hesitant to expand production capacity, so supply may fall short of demand.
- Demand: The long-term demand for metals from new energy and AI industries (e.g., electric vehicles require three times more copper than fuel vehicles, and solar power plants need large amounts of copper) will sustain prices.
- Currencies: Global inflation is unlikely to decline quickly, and the suppressive effect of rising US dollar interest rates is limited, providing support for commodity prices.
In summary, this article provides a clear explanation of the logic behind commodity cycles. The key point is that commodity prices are influenced by both supply and demand, as well as currency and geopolitical factors. Understanding these trends is useful for investment decisions (e.g., in gold and metal funds) and for predicting price movements.