It has been a powerful bull market in commodities. So impressive, many refer to it as “the super-cycle.” Driven by insatiable demand from China and other developing nations, cheap money courtesy of the Fed and lack of investment in the previous cycle, commodities have been the place to be for over a decade.
Oil prices are up five-fold since the late 1990s, iron ore is up seven times and most agricultural commodities have more than doubled. Gold, as attested to on AM radio and in late night TV commercials, also enjoyed a bullish ride and is up over five times its price in 2001.
Now, if you believe the commodity bears, this super-cycle is over. Their argument: China’s economy is permanently stuck in a lower growth mode and Beijing’s focus has moved from building infrastructure to stimulating its consumer economy. This will slacken demand for commodities, the argument goes, and put downward pressure on prices. The big investment banks have published unequivocal research supporting this view including Citi’s, “From Commodities Super-cycle to Unicycles,” and Deutsche Bank DB +0.7%’s, “Trading the Commodity Underperformance Cycle.”
This thesis has gathered steam as commodity prices have fallen. Since Labor Day 2011, gold has dropped by 34%. Many other formerly hot commodities haven’t fared much better.