The commodity cycle is upon us, yet global portfolios remain woefully under positioned. Historically, the last major commodity Supercycle peaked with allocations around 12% in global investment portfolios, but today, we’re hovering at approximately 3%—a staggering 75% drop. This under allocation comes at a time when structural conditions are arguably more bullish than in previous cycles. The U.S. and Western nations are awakening to the perils of offshoring their industrial bases to China, echoing the 1970s oil crisis not as a supply shortage, but as an embargo-driven unavailability. China’s dominance in critical minerals—essential for defence, electric vehicles (EVs), and mobile phones—poses a sovereignty risk that money printing alone can’t solve. Efforts like Trump’s reintroduction of the Monroe Doctrine, reshoring initiatives, and critical minerals stockpiles highlight a desperate push for independence, all demanding massive resource-intensive investments in grids, factories, and processing facilities. As the adage goes, there’s no new economy without the old one, and China has mastered this by controlling downstream industries to rule upstream ones.
Historical Context: Lessons from Past Commodity Cycles
Commodity markets have long moved in extended “super cycles”—multi-year periods of rising or falling prices driven by structural shifts in supply and demand. Since 1899, there have been four major super cycles, each lasting 20-30 years, often triggered by demand shocks and prolonged by sluggish supply responses. The most recent historical bull run, from 2000 to 2012, was fuelled by China’s rapid urbanization and industrialization, which boosted demand for everything from oil to base metals. During this period, commodity returns surged 59%, despite a 21% dip amid the 2008 financial crisis. Prices peaked in 2011, with the Bloomberg Commodity Index (BCOM) reflecting strong spot and collateral returns, though roll yields were negative.
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In contrast, earlier cycles like the 1970s oil boom were geopolitically driven, with OPEC’s embargo causing prices to spike amid stagflation. The 1933-1961 cycle was post-Depression reconstruction-led, while the 1962-1995 period saw volatility from energy crises and emerging market growth. These cycles averaged peaks 10-33% above long-term trends, with troughs dipping 10-38% below. Bull phases typically lasted longer than bears, with average bull markets spanning 4.9 years and yielding 177% cumulative returns, versus bear markets’ 1.5 years and -35% losses.
The current cycle, emerging around 2020, has already shown bull phases in 2021-2022, with commodity indices delivering 15% total returns in 2025 alone. However, unlike past demand-led booms, this one is marked by supply disruptions and geopolitical tensions.
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Surfing the commodities cycles
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The chart above illustrates typical commodity cycle phases, highlighting the extended bull runs and sharp corrections seen historically.
Why This Bull Run Stands Apart: Geopolitics, Supply Chains, and the Green Shift
What sets the current commodity bull run apart is its foundation in geopolitical risks, concentrated supply chains, and the global energy transition—factors less dominant in prior cycles. Past super cycles were primarily demand-driven, like China’s 2000s growth spurt. Today, it’s about supply vulnerabilities and strategic imperatives.
China’s stranglehold on critical minerals: China controlled 60% of global rare earth mining and 91% of separation/refining. For germanium and gallium—key for semiconductors—it’s 60-90%. By 2030, projections show China dominating 60% of refined critical minerals, including 86% of lithium and 71% of cobalt. This dominance isn’t accidental; it’s the result of decades of industrial policy, giving Beijing leverage in trade wars and tech races. Recent export controls on rare earths underscore this, intensifying U.S.-EU efforts to diversify.
Geopolitical tensions amplify this. The U.S.-China AI and power race, coupled with deglobalization, is driving reshoring and defence spending—seven forces shaping the cycle: deglobalization, decarbonization, defence, de-dollarization, demographics, urbanization, and climate change. Unlike the 1970s embargo, today’s risks stem from China’s potential to withhold supplies, rendering U.S. dollar hegemony less effective. Infrastructure needs for the energy transition—EVs, renewables, grids—require massive commodity inputs. For instance, AI-driven data centres could boost power demand 160%, spiking copper and aluminium needs.
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Statistics bear this out: Global commodity demand rose 80% from 2019-2022, with energy up 95% and metals 50%. Fund managers appear significantly underinvested in commodities relative to previous cycles, with current global portfolio allocations hovering at historical lows. Based on recent data from major financial institutions, commodity exposure in institutional and fund manager portfolios stands at approximately 1.7% to 3% as of early 2026, a sharp contrast to the peak of around 12% during the last major commodity Supercycle in the early 2010s. This underallocation—down roughly 75% from historical highs—reflects a decade of post-2011 bear market conditions, where low commodity prices and ample supply discouraged investment, leading to reduced capital expenditures (CAPEX) in the sector.
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Commodities outperformed equities and bonds in 2022 amid inflation, adding diversification benefits. In 2025, precious metals like gold (+59%) and silver (+93%) led, driven by central bank buying and deficits. This cycle’s insurance value against disruptions—geopolitical or climate-related—makes it structurally stronger than past ones, potentially extending into a multi-decade bull.
Opportunities for Indian Investors
Indian investors, traditionally equity-focused, can capitalize on this cycle through commodity-themed mutual funds, which offer diversified exposure without direct commodity trading. These funds invest in commodity-related equities, ETFs, or indices, mitigating volatility while providing inflation hedges.
Benefits: Commodities diversify portfolios, with low correlation to equities (-30% pre-2005, now 49%). A 4-9% allocation can boost Sharpe ratios and hedge inflation. For Indians, these funds are SEBI-regulated, tax-efficient (long-term capital gains at 12.5%), and accessible via SIPs.
Risks: Volatility from geopolitical shocks; sector concentration. Start with 5-10% allocation, and consult an advisor. (You can reach out to the author at srinivasbg@invictusfinserv.com)
