JP Morgan thinks there is more space for commodities to move higher

New York (May 17)  Commodities, in general, have had a great run of late anyway but with prices, so extended it leaves investors thinking how much further can prices go. If this projection is correct then inflation numbers around the world could get even higher. Just recently the year-on-year inflation number hit 4.2% after analyst expectations showed a median average of 3.6%. Copper futures are trading just over 32% higher this year and oil has moved 34% higher. 

In regards to some of the fundamentals, Canada has restricted the supply of timber from its forests. Oil prices have been on the move higher as demand for fuel jumps and a cyber attack cut off one of the biggest pipelines in the U.S. and copper prices have more than doubled thanks to increased demand for it in electric vehicles and the supply chain failing to keep up.

JP Morgan noted, "Not only do commodities ex-gold look less vulnerable in the longer-term from a positioning point of view relative to the near-term, but they also look a lot less vulnerable relative to the equity asset class,". Even gold has had a run recently though holding firmly above $1800/oz and pushing $1850/oz today.

Also, if inflation continues to surprise to the upside in the coming months, commodities relative attractiveness in the long-term "becomes even stronger given investors' perception of commodities as (a) better inflation hedge," JPMorgan concluded. 

The daily chart below shows the extent of the move higher in copper. The pick-up in demand as many countries project they are heading out of the COVID-19 pandemic has given the commodity fresh impetus for a move higher. There is also the possibility that there could be more strikes at the Escondida copper mine in Chile which could squeeze supply slightly more. 

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