Trade finance banks also provide the ability for producers and consumers to hedge their exposures. This is far more important for producers than consumers, as consumers can ultimately pass on any price changes to customers, whereas producers have fixed costs to cover that are mostly in the currency of the country where production occurs.

It is interesting that this run up in commodity prices over this 10 years from is still smaller than what happened between 1971 and 1980 during the period of the Great Inflation. In the ‘70s, commodity prices grew twice as much in roughly half the time. This says something about the supply side response by producers to the most populous nation in

Whether you credit Paul Volcker for breaking inflation through aggressive monetary policy tightening, or a fall in oil prices due to abundant supply in the early ‘80s, by 1980 the 10-year run in commodities was over, as so was the weakness in the US Dollar.

The Yuan is intentionally weakened to encourage growth. This will usually come with other growth measures that involve credit expansion, fixed asset investment and thus commodity consumption. The US Dollar, as a free-floating currency, doesn’t have the luxury of being managed against a broader national goal.

Interestingly, it’s the lack of an open

At the quarterly to annual scale however, the factors to price moves become more obvious.

The key factors are:

• GDP growth differentials;

• Interest rate differentials; and

• Capital flows

The timing of the bottom of the US Dollar may not be important when considering the long-term view. However, the absolute high in the US Dollar could be set at the time of the peak of the current Fed hiking episode, which will not be when the last interest rate hike is completed, but when US economic growth starts to turn downwards.

When commodities are weak, the US Dollar is strong as producer economies underperform. They then set interest rates lower, and lose capital to the US safe haven. US Dollar based borrowing in these countries will sometimes precipitate a crisis at the same time as a strengthening US Dollar makes it harder to repay loans.

The invasion of Ukraine by Russian forces in February 2022 has abruptly ended a prolonged (and rare) period of peace in Europe.

This period of peace has made us forget about the realities of our need of resources for modern society. Tech, and all the evangelism associated with it, does not solve the need for base commodities. In fact, it drives it.

T

The trends are faster in the case of weak commodity prices because the cycle will exhibit the same links, but in an accelerated manner. Producers, worried about covering their fixed costs, are incentivised to increase supply to try to get volume to overcome the price effect, further pressuring prices downward.

The theory I advance here is that