In the past eighteen months, the only consistent trend that has been observed is that everything has become expensive in every sector and every product. And if all directions of the path are to be followed then there is only one destination that was the starting point of it all and they are commodities.
The underinvestment over the past many years and a sudden hoarding of it has made commodities into a higher profitable sector after decades as prices go higher and volume available
But now comes the point that price rises impact negatively to the economy and result in a risk of inventory glut at all ends of the supply chain once the festival season finishes.
On the other hand, the main consumer of most commodities has already reduced much of its imports due to lower demand as covid restrictions are imposed and pollution control measures are put in place for Winter Olympics in February 2022. This is not only the perfect storm for all the long positions in commodities but a perfect crisis in the economy.
As the Fed starts to taper the asset purchase the cost of liquidity and availability changes throughout the world. But the covid spread that was the reason for such volatility still exists and creates a massive risk to the demand side as majority economies remove the special schemes introduced to subside the impact.
This will result in a correction in the short term that will be unexpected and not change the impact of demand and supply dynamics in the medium term.
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