The commodity super cycle: Citi declares it has come to an end
On a day when gold plummeted and oil dropped right alongside it, Citi Research was throwing dirt on the grave of the commodity super cycle.
The then-Goldman Sachs Commodity Index hit its bottom in early 1999 (it’s now the Standard & Poor’s GSCI), and the talk of a new commodity super cycle began soon after that. You’d hear frequently that the super cycle was going to last 15 years, or maybe 20. So it’s about 14 years old, and Citi Research’s Ed Morse, in a report released Friday, says it’s breathing its last. (Full disclosure: Standard & Poor’s, like Platts, are both owned by McGraw-Hill Financial.)
“The second quarter should provide another affirmation that the so-called commodity supercycle has finally ended and should usher in the first ‘normal’ year in over a decade in which, broadly, commodity prices end the year lower than when the year started,” Morse said in his report. The super cycle’s end has been building for several years, Morse said, noting a “Supercyle Funeral” that began in 2011. This year would be the “afterparty.”
The report clearly wasn’t written just on the back of the fall in gold prices Friday; they were down more than $85 on the CME to a settlement less than $1,500 after almost reaching $1,800 last fall. Instead, it’s a broader macro outlook that happened to be published on a day of steep price declines that put an exclamation point on its findings.
“For the next few years, each commodity looks more likely to be sitting on its individual supply/demand fundamentals than on more general factors affecting all of them,” Morse wrote in the report. “This means that as either their separate long-term and short-term cyclical logistics take over, for some prices will rise while for others they will decline, and investors across commodities will be able to take advantage of alpha return strategies focusing on long versus short positions, other relative value relations across the commodity space as well as across time spreads, changes in momentum and volatility.”...MORE
