Breaking It Down: Navigating the Commodities Rollercoaster

'Breaking It Down,' where we embark on an enlightening journey into the world of futures, commodities, bonds, equities and more! In this edition, we shift our spotlight to the commodities cycle.

Apologies about the audio. Not sure what happened. I’ll fix it and update it soon.

• Were the 60s similar to the late 2010s? This chart is 3 years old and this ratio has already bottomed.

  
  The commodities cycle refers to the pattern of price movements and supply-demand dynamics in the commodities markets over time. It typically consists of several phases, which can help in understanding the behavior of various commodities, such as agricultural products, metals, energy, and more. The commodities cycle includes the following stages:

  1. Boom Phase: In this phase, commodity prices are on the rise. Factors like increased demand, supply shortages, or geopolitical events can contribute to rising prices. This often leads to a surge in investment and speculation in commodities.

  2. Peak Phase: The peak phase is characterized by the highest prices, driven by strong demand and supply constraints. Investors and speculators are typically optimistic during this phase, believing that prices will continue to rise indefinitely.

  3. Bust Phase: At the bust phase, prices start to decline as some of the factors that led to the boom phase begin to weaken. This can include increased production, reduced demand, or the resolution of geopolitical tensions.

  4. Trough Phase: The trough phase is marked by the lowest commodity prices. Oversupply, reduced demand, or improved production often contribute to lower prices. Investors may become pessimistic about the prospects of commodities during this phase.

  5. Recovery Phase: In the recovery phase, prices start to rebound from their lowest point. This can be driven by factors like increased demand, supply constraints, or shifts in market sentiment. Investors start to regain confidence in the commodity markets.

  The commodities cycle is a recurring pattern, and different commodities may be at different stages at any given time. It's important to note that the length and intensity of each phase can vary significantly for different commodities and can be influenced by a wide range of factors, including economic conditions, weather patterns, technological advancements, and government policies.

  

  Jason Perz AAO Research