Demand growth and supply shortfalls, which underpinned the commodity rally in the first half of the year, will face increasing downward pressure and uncertainty in the future. Against the backdrop of divergent monetary environment among major economies, the future market is bound to face more divergence and turbulence than a so-called super cycle. The further fragmentation of commodity markets may disprove the so-called "supercycle theory".

If three months ago, commodities that had outperformed other asset classes for five consecutive quarters were a hot bet, some investors even threw out the "supercycle" theory of commodities. However, the performance of commodities in the last two months, especially the full pullback in August, has changed that view. The Bloomberg Commodity Price Index stood at 91.16 as of Aug. 19, down from a 52-week high of 97.51 at the end of July, but still up 16.79% since the start of the year and well above its low of 60 in late April.

Looking at the data, it seems that commodities markets should remain more enthusiastic right now. Looking ahead to the fourth quarter, however, investors are betting that further fragmentation in commodities markets may disprove the so-called "supercycle theory".

Looking back at the first half of the year, commodities have diverged. In the oil market, the economic recovery in the US and Europe and the strict implementation of the OPEC+ production cut agreement created bullish sentiment. In the base metals market, unprecedented global money supply, the reopening of major economies and the orientation of green development drove copper prices in the second quarter to surpass the 2011 record high. Compared with oil and base metals, gold seems to be the first asset class to disprove this "supercycle". Gold topped $2,000 an ounce in August 2020 amid the COVID-19 pandemic. However, with the vaccination of developed economies and the recovery of the global economy, the price of gold rebounded in the first half of the year in the second quarter, but the overall trend of volatility and decline. After June's worst performance in five years, some investors believe the gold bull run is over.

Looking ahead to the second half of the year, especially the fourth quarter, from the macro level, the continuous spread and rapid spread of the current global Delta mutant strain is aggravating investors' concerns about the global recovery process slowing down again. Under inflationary pressure, central banks in major advanced economies are likely to tighten monetary policy further to contain rising commodity prices. These factors create an environment that is not conducive to a sustained rally in commodities as a whole. At the same time, considering the supply and demand factors of various products, the overall situation of the commodity market will continue to diverge in the future.

The gold market investment heat is falling further. The central factor is the same one that caused the gold market to fall in June -- the tightening of US monetary policy. In June, the Fed's "Wolf is at the door" message sent the gold market tumbling. In the second half of the year, the Wolf may indeed come. Minutes from the Fed's July meeting showed that while members were divided on how to adjust the reduction in monetary support for the economy, there was agreement that it was "likely to happen this year". The Fed is expected to gradually adjust the pace of its MBS purchases in the fourth quarter, assuming the recovery from the Delta mutation does not take a turn for the worse. The Fed is also expected to raise interest rates at least twice by the end of 2023 under inflationary pressure.

The level of real interest rates in the US is effectively equivalent to the opportunity cost for investors to hold gold. Neither the imminent shrinking of the balance sheet nor the interest rate hikes already on the horizon are good news for gold. Historically, gold prices have tumbled more than 3% after the Fed's taper announcement in 2013.

Therefore, citigroup and other institutions believe that the current bull market in gold has long ended, it is difficult to return to the high of $2,000 / ounce in the future, and will keep the trend of volatility and decline in the second half of the year.

Crude oil market, investors think will be short - term shock, long - term decline. In the short term, "OPEC plus" will continue to keep the market tight in the second half of the year. On the demand side, global crude oil demand will continue to recover in the second half of the year, with improved COVID-19 vaccination rates and the gradual lifting of lockdowns in the US and Europe, especially with further recovery in international transportation. It is widely believed that the oil market will maintain destocking in the second half of the year.

However, the market remains highly alert to downside risks from a stronger DOLLAR, growing divisions within OPEC+, recovery of U.S. shale oil production and the spread of the Delta mutant strain. The choppy fall of mid-August looks set to be the norm for oil in the short term.

In the medium to long term, U.S. shale oil, which was hit hard by the pandemic, has begun a gradual recovery, with the total number of U.S. oil RIGS in early July nearly doubling from the same period in 2020. At the same time, the current low production capacity situation of OPEC+ cannot be sustained for a long time. The medium and long term consideration of OPEC+ is to gradually restore oil production, especially to avoid the share shock after the resumption of U.S. shale oil production. Therefore, although the subsequent demand level will continue to recover, the dual development of supply level may lead to a gradual decline in crude oil prices in the medium and long term.

At the base metal market level, copper prices seem to be "lonely at the top". Certainly, continued dovish comments from the Fed in the first half of the year, improved growth prospects in the US and Europe, US infrastructure plans and the need for a green economic transition boosted sentiment. However, a higher breakout from a higher perch requires stronger fundamentals or financial investment. At present, these two factors are not sufficient. From a fundamental point of view, the policies of many countries to prevent excessive commodity price increases will put some pressure on copper prices. Other supply-demand factors that supported copper prices in the first half of the year have not changed materially, so bargain-hunting strategies could lead to continued volatility in the second half of the year. From an investment perspective, the "reflation trade" had supported copper prices. However, the recent further hawkish stance of federal Reserve monetary policy, especially interest rate policy, has created some downside risks for copper prices.

Compared with gold, crude oil and copper, aluminum seems to be the new investment darling. Recently, aluminum prices have retreated on more hawkish Fed interest rate expectations and increased focus on rising commodity prices in many countries. However, it is expected that the aluminum market will continue to be tight in the medium and long term under the impetus of the aluminum tariff dispute between Russia and Europe, automobile industry demand, replenishment of inventory and other factors, which will provide a certain support to the price.

Overall, the fundamentals supporting commodities in the first half of the year -- demand growth and supply shortages will face increasing downward pressure and uncertainty in the future. Further impetus for demand growth has not emerged, and the previously feared recurrence of the epidemic and the divergence of recovery between emerging and developed economies are gradually emerging. Supply constraints are gradually being broken, and the impact of the outbreak on the supply chain will oscillate between further vaccination and the rapid spread of mutated strains. Against the backdrop of divergent monetary environment among major economies, the future market is bound to face more divergence and turbulence than a so-called super cycle.