John Hussman recently showed the chart below:
As chart notes, commodity prices over time have not risen indefinitely without pulling back to flat or neutral returns. This isn’t to say commodities can’t rise further, as bubbles can continue much longer than expected. Ray Dalio, founder and chief investment officer of Bridgewater Associates, notes the commodity bubble can last “until China
It appears that commodities are a bubble and will pullback at some point. The combination of easy monetary/fiscal policy, market psychology, emerging markets demand, supply shortages, etc. have certainly helped elevate prices over the last decade; however, it doesn’t seem likely that commodities can continue in this uptrend forever. The big question is when the bubble will begin to deflate and that is anyone’s guess. Regardless, commodities can still play the role of diversifier or inflation hedge in the portfolio.
