Currie: ‘Volatility trap’ in commodities

Disconnect between prices and production threatens to create a “volatility trap” in commodities and discourage investment in the sector, something that could threaten the supercycle.

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Disconnect between prices and production threatens to create a “volatility trap” in commodities and discourage investment in the sector, according to Jeff Currie, head of commodities research at Goldman Sachs. “You’ve got to grow supply and de-bottleneck the system so you can accommodate more demand growth,” Currie says.

While he contends a commodity supercycle is in the “early innings,” investment is needed.

Currie’s supercycle thesis is based on three recent trends:

• Redistributive policies, which have resulted in a big demand boom, particularly for commodities.

• Environmental and social governance policies, which contributed to underinvestment in extractive industries.

• Deglobalization, which adds to the cost of commodities.

Currie says underinvestment encompasses energies, metals and even the ag sector. While every commodity boom is different, he contends there are some notable similarities to the 1970s, the last time there was this kind of inflationary fear. “There’s one thing that can end a supercycle: Investment,” Curries says. “That’s how you ended the 70s. It’s how you ended the 2000s. And that’s how we’re going to end this one.”

Listen the Curry’s views on the commodity situation in the Odd Lots podcast via Spotify or Apple Podcasts