We believe commodities are in a secular bear market – a longer-term period of flat-to-down prices. The chart (right) indicates what this suggests for commodity prices in the years ahead a broad trading range. The asset class is following the typical script for secular bears and we expect it to remain intact.

That being said, within secular bear markets there can be meaningful shorter-term rallies. In fact, rallies of 40 70% can be commonplace within a longer-term bear market, but they tend to be relative short in duration. Commodities appear to be oversold currently, fears of deflation are rampant, oil prices appear to be bottoming, and commodities have been the worst asset class running for 4 consecutive years. In other words, we are overdue for a rally in commodity prices.

Clients should view a potential rally in commodities (which includes oil and gold) within the secular bear context.