In general, commodities really do not look set for a Fed that will hold policy tighter for longer, with all the flow on effects that has (dollar, rates, emerging market growth, inventory carry costs etc)…

For those not familiar with the above, a common macroeconomic model for forecasting commodities is to plug key demand proxies into a regression. When you do that, you tend to find that commodities don’t like higher real interest rates, or a higher dollar (which is often the other side of the same coin) or lower anticipated growth.

That’s all pretty intuitive; commodities are priced in dollars, and if the USD goes up it makes purchasing commodities harder for commodity importing countries, which lessens the quantity demand. Similarly, if yields go up, the return to cash is more appealing than a) speculation and b) carrying costs of inventory. The lower global growth part is self-explanatory, less investment, lower commodity demand.

There’s nothing about the above that suggests “all done, commodities have found a floor” from here.

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