Commodities Are the Trade for Riding out the Fed-Caused Recession

The comments below are an edited and abridged synopsis of an article by Richard Mills

Mills believes that previous rate hikes to deal with inflation resulted in recessions. He discusses Nouriel Roubini’s prediction that this recession will be ‘severe, long and ugly’; the Buffett Indicator; and undervalued commodities.

Commodities Are the Trade for Riding out the Fed-Caused Recession - BullionBuzz - Nick's Top Six
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However, G&R’s Commodity Prices/DJIA chart shows there hasn’t been a better setup for commodities than now, over a time frame spanning 120 years.

There are many reasons to be bullish on commodities and a lot to indicate that inflation is not going away soon, thus setting up the conditions for a multi-year commodities up-trend.

First, there has been a lack of spending on exploration/development, leading to current and looming supply shortages for a number of metals. The mining companies in the mid-2010s basically ate each other and by shutting down exploration there was no accretive increase in reserves. Lower ore grades have also become an issue.

Second, natural resources are being used up faster than they can be replenished.

Third, countries that have the metals needed to fuel economic growth are guarding them more closely than before; resource nationalism is on the rise.

Fourth, the US, China and the EU need to invest heavily in infrastructure and mining, especially critical minerals needed for the shift toward electrification and decarbonization.

This transition will require about $173 trillion in investments over the next 30 years.

There will be elevated prices for certain critical industrial metals that are central to the new green economy, like copper, lithium and graphite, for decades to come.

Dramatic price increases for energy and food are part of a ballooning cost-of-living crisis in much of the developed world, as inflation continues to wrack economies and central banks try to control it through interest rate increases that are impeding growth, and threaten to plunge the global economy into a deep recession.

The bottom line? Even if the recession is long, commodities should be practically bullet-proof.

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