Commodities vs Equity Valuations Hover Near 50-Year Low. Could There Be a New Commodity Supercycle?

A commodity supercycle occurs when prices of commodities rise above their long-term averages for long periods of time, even decades.

Oil, metals, and food grain prices have surged in the past few weeks as U.S. economic data improved and recession fears eased.

The US crude benchmark has rallied more than 15% this month, propelling it to the commodity's biggest advance since January 2022.

Goldman Sachs on Sunday revised up its global oil demand forecast for the year. The analysts estimated global oil demand climbed to an all-time high of 102.8 million barrels per day (bpd) in July and see solid demand driving a larger-than-expected 1.8 million bpd deficit in the second half this year and a 0.6 million bpd deficit in 2024.

A reduced recession risk and a strong effort by the OPEC+ to push up prices support Goldman's view on higher oil prices and an outlook for less volatility, the analysts wrote in a note.

JPMorgan sees an opportunity in gold and has an average price target of $2,175 an ounce for bullion in the final quarter of 2024, with risks skewed to the upside on a forecast for a mild US recession that's likely to hit sometime before the Fed starts easing.

Falling real yields in the US will be a "significant driver" for the precious metal when the Federal Reserve starts to deploy rate cuts, which should play out in the second quarter of next year, JP Morgan executive director of global commodities research Greg Shearer said.

"We're in a very prime place where we think gold ownership and long allocation to gold and silver is something that acts as both alate cycle diversifier and something that will perform as we look to the next sort of 12, 18 months," Shearer said.

Copper hit a three-month high as it headed for its biggest monthly advance since January, supported by growing optimism over Chinese demandandmounting supply risks in Chile.

On the demand side, Beijing's leadership has promised more support for the real estate sector and a reduction in the local-government debt burden, which are expected to boost the need for commodities in the top metals consumer. Supply risks were also in focus after Chilean copper mining giant Codelco on Friday lowered its annual production guidance and raised cost estimates after another disappointing quarter.