Commodity Super Cycle to begin soon - May 14

[dan_s]

"Heading into 2H2025, the most successful portfolio strategies will likely own gold, silver, cattle, hogs, corn, coffee, copper, natural gas, gasoline, diesel, soybeans, and bean oil."

22V Research
May 14, 2025

Commodities are firming on the easing of trade tensions: 7 of 36 commodities now score above 15.0 in our Commodity Condition Indices framework (spotlighted in blue in the first slide below). This count had slumped to 4 in the weeks following April 2 (Slide 2 below).

In another notable change, gold is no longer ranked number one commodity on relative strength of fundamental conditions, as measured by CCIs. It has slipped to second. The pole position is now held by cattle.

Demand for gold in the physical and paper markets has incrementally relaxed on the de-escalation in chaos and fear, even as all seven drivers for gold’s bull case remain intact (Slide 3 below). At the same time, U.S. cattle inventory is at the tightest supply in 74 years and getting tighter on the smallest calf crop since 1948.

This movement in relative strength between cattle and gold also now appears in the rank ordering of S&P GSCI total returns relative to volatility by commodity. Information ratios YTD are 2.65 for CME feeder cattle and 2.62 for CME live cattle, while CMX gold ranks third highest on that metric at 2.55 and CBT soybean oil (2.28) and ICE arabica coffee (1.55) round out the top five (Slide 4 below).

Likewise, gold no longer has the strongest YTD performance among commodities on a total return basis (Slide 5 below). CBT soybean oil (+27.1%) and ICE arabica coffee (+23.2%) have delivered the highest returns, outperforming both CMX gold (#3 at +22.5%) and CMX silver (#7 at +12.8%). Rounding out the top ten are CME live cattle (#4 at +16.2%), CME feeder cattle (#5 at +15.5%), NYM natural gas (#6 at +12.8%), LME copper (#8 at +11.2%), CBT soybeans (#9 at +5.0%) and NYM platinum (#10 at +9.3%).

Confirmation that fear is ceding ground to growth is also found in the path of the CRB raw industrial price index (Slide 4 below). This version of the CRB includes only physical market cash prices in its construction. There are no futures prices, so it is a cleaner expression of current activity on the ground. This index was at 576.04 (a cyclical high) on April 1 before contracting (–4.2%) to 551.67 (Apr 15) in the aftermath of the April 2 Rose Garden presser. Since that fear-induced low, prices have recovered to a path consistent with the former cyclical uptrend. This index now stands at 560.91 (May 13).

In another subtle confirmation of progression from fear to growth in the context of the AI/power/gas nexus theme, copper now ranks fifth on the CCIs (15.5 and rising) and U.S. natural gas now ranks seventh (15.3 and rising, Slide 1 below).

The relative motion now unfolding in CCI scores for gold (17.4 and falling) and copper (15.5 and rising) dovetails with the relative price action in gold and copper. The copper/gold price ratio has inflected higher at both spot and future tenors (Slide 6 below). While there can be no guarantee that April 21 marks a durable bottom in these charts, we view the turns as a positive signal for economic resilience.

Forward-looking commodity-related equities concur. The leaders among the U.S. natural gas producers and U.S. oil refiners have returned to delivering the extraordinary outperformance we expect in 2025-28 against the S&P 500 (Abandoned Alpha, 8-Jan-2025). With the S&P 500 up +0.1% in 2025, year-to-date returns are +13.6% for Expand Energy (EXE), +17.1% for Antero Resources (AR), +12.9% for Range Resources (RRC), +16.7% for Marathon Petroleum Corp (MPC), +10.2% for Valero Energy Corp. (VLO), and +10.2% for Phillips 66 (PSX). See Slide 7 below.

Our Red Lasso theme (bullish copper but more bullish copper miners) has also recovered after stumbling in April: the share price for the Global X Copper Miners ETF (COPX) has advanced by +7.0% YTD. Among underlying components, year-to-date returns are +15.0% for Antofagasta (ANTO LN), +25.0% for Zijin Mining Group (2899 HK), +10.8% for KGHM Polska Miedz SA (KGH PW), +3.6% for Freeport McMoran Inc (FCX), and +2.5% for Lundin (LUN CN). Laggards include Teck Resources (–6.3%, TECK) and Ivanhoe Mines (–14.2%, IVN CN). Both look cheap relative to macro conditions, notwithstanding idiosyncratic operational difficulties.

Within our Metallic Rebellion theme (bullish gold but more bullish gold miners), the respite in gold’s ascent has quieted the rate of upward motion in the shares. Juniors are now also outperforming seniors. Year to date, the VanEck Junior Gold Miners ETF (GDXJ) has beaten its sibling, Van Eck Gold Miners ETF (GDX), by +150 bp (+38.7% vs +37.2%).

Conclusion: hostile markets for financial assets are the textbook use case for an overweight commodities allocation in diversified portfolios. The one-year rolling correlations between the S&P GSCI and World Equities and World Bonds slipped into negative territory with the start of a new multi-year commodity cycle in February 2024 (15 months ago). At the end of April 2025, those correlation coefficients were –0.10 and –0.59 respectively, from +0.72 and +0.49 in June 2023. In 2025, global markets are also going through simultaneous breakpoints in an 80-year institutional cycle, a 50-year socioeconomic cycle, and a 25-year commodity cycle. This is the first time in U.S. history that breakpoints have coincided for all three cycles, as George Friedman warned attendees at 22V’s Commodity Conference last fall (Oct 9). Friedman calls this moment in history “the storm before the calm”. For simplicity: think of the institutional cycle as the rewiring of world trade in the context of the aging/disintegration/reinvention of the Bretton Woods Institutions and GATT/WTO, the AI/quantum computer/robotics/power/gas nexus theme as the socioeconomic cycle, and gold as the first avatar of the commodity cycle. There are also vital cross linkages among the cycles (e.g., U.S. LNG gas exports to feed a Europe that on May 6 reaffirmed it is committed to ending all gas imports from Russia by the end of 2027). Heading into 2H2025, the most successful portfolio strategies will likely own gold, silver, cattle, hogs, corn, coffee, copper, natural gas, gasoline, diesel, soybeans, and bean oil. Despite some signs of life in steel (CCI=7.6 and rising, May 14), we remain inclined to underweight ferrous markets.