The market has become very optimistic about commodities, and there is already talk of a new supercycle—a view that, while yet to be fully realized, we share. 

There are several reasons to believe that the current rally still has room to consolidate:

1. Synchronized global growth + high liquidity: With multiple vaccines set to be rolled out, economic risks and concerns about another wave have eased somewhat. Accelerated fiscal stimulus (raw material-intensive). 
2. The weak dollar. (Denomination effect)
3. China's growth will remain strong, as will demand. Due to some delays in implementation this year, several infrastructure projects will be carried over to 2021. 
4. Lack of significant supply additions: For several commodities, there appears to be a lack of significant supply additions in 2021. This would be highly optimistic, especially given that we are coming off several years of very low investment in the sector. 

Goldman Sachs, which in late 2020 predicted a new “structural bull market” for commodities, argues that stimulus packages—such as China’s new five-year plan, Europe’s Green Deal, and the package planned by President-elect Joe Biden for the United States, could have an impact similar to that of China’s infrastructure build-out in the 2000s. 

And recently, JP Morgan noted that commodities have entered a supercycle that will last for years. The fight against climate change will have a positive impact, as metals are needed to build the necessary infrastructure for energy, batteries, and EVs, and there will be a reduced supply of crude oil. China’s growth, expansionary monetary policies, a weak dollar, and inflation are other factors driving this trend. Commodities have experienced four super cycles over the past 100 years. The last one occurred in 2008 (peak) after 12 years of expansion.

 Relative Performance: Commodities vs. Equities                                                          

  CRB Commodity Index