However, is the hard asset trade a sustainable one? Or is it a trap that will disappoint investors in the years to come?

When it comes to the commodity, or hard asset, trade, it is usually avoided by the mainstream media. They would rather focus on whatever "hot stock" or investment meme is leading the market at the time. However, from "gold bugs" to "oil traders," the commodity trade is a source of booms and busts along the way.

For our analysis, we are going to focus on the CRB Commodity Index as a proxy for commodities. From the index, we can then explore how the dollar, interest rates, economic growth, and inflation drive commodity prices.

Is the commodity trade here to stay, or is this another "boom" waiting to "bust."

A Long History Of Booms And Busts
Since 1980, the start of my data feed for the CRB Index, there have been 4-distinct cycles in commodities.

From 1980 to 2000, the trend of commodity prices fell as the economy shifted from manufacturing to financialization. Beginning in 2001, as the dot.com era came to an end, investment flows shifted to commodities and emerging markets in anticipation of a global resurgence. Housing demand boomed as mortgage rates fell, and energy demand rose on fears of "peak oil production."

However, as quickly as it came, the demand for commodities faded as the financial crisis crippled the entire global economy. That deflationary trend continued until March 2020. As the Covid-pandemic locked down economies, governments injected billions of dollars to stimulate demand. Not surprisingly, inflation surged and demand for inflation protection in the form of commodities rose.