Commodity supercycle is essentially over: Citigroup

The last decade’s commodity supercycle, in which prices have been on an upward trend, has come to an end, said Tuesday Citi Research, which has been warning of a “supercycle sunset” since last year.

In today’s research note, Citi’s head of commodities research, Ed Morse, said it expects 2013 to be year in which “the death bells ring for the commodity supercycle after its duly noted sunset.”

This view is in open contradiction to JP Morgan’s, which said in March this year, the longer-than-average period of rising prices was set to last another 15 years. The basic idea behind that statement was that emerging countries, such as India and China, still had a lot of commodity intensive growth ahead.

However, Citi points out that the slower-growing Chinese economy, a lack of correlation between equities and commodities, and a stronger US dollar are all but clear signs of the end of an era, with gold serving as the lynchpin for understanding the “new regime.”

Morse said gold has lost “investment glitter” as investors seek higher returns in other investments and inflation fears are further postponed. “As fears of inflation driven by global QE (quantitative easing) recede, for the time being, so should the gold price. Our current projections are for gold price to average $1,555/oz in 2013 and $1,435/oz in 2014,” he said in Tuesday’s note.

The group concludes change is “ushering in a new decade of opportunities based on how individual commodities will perform against one another and against broader market indicators such as equities or currencies.”

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