In this week’s global weather forecast, Dubai experienced two years of rain falling in just 24 hours, extreme heat waves scorching other parts of the world, and clear skies for commodity prices to break new highs. When uranium reached a record high in early January, we had no idea it would be the first of several commodities to breach records… and by the looks of it, we might soon be celebrating (or angsting) about higher prices all year long.

Commodity boom: This year, the Dow Jones Commodity Index, a measure of 28 different commodities prices, has risen 6.5%, outpacing the S&P 500. Investors and producers are locking in contracts to hedge against increasing costs amid geopolitical risks, environmental disruptions, and supply uncertainties.

• Two of the world’s most valuable commodities have led the gains, with gold notching record highs — and oil eclipsing $85/barrel due to conflicts in the Middle East.
• Cocoa and coffee prices have also surged to their highest in nine years due to heat waves and extreme weather.

Inflation watch

The rising commodity prices today are reminiscent of the early pandemic days when raw material prices soared — and inflation followed as manufacturers faced higher costs in everything from baking bread to building AI chips. That trickled down to consumers through higher prices, and if this trend doesn’t reverse, buyers could be in for more sticker shocks.

• This week, Fed Chair Jerome Powell emphasized the “lack of further progress” in lowering inflation to 2%, which could delay interest rate cuts or, worse, lead to more rate hikes.
• However, analysts underscore growing costs of commodities like copper often signal economic strength.

Worth buying? Commodities may offer a hedge against inflation and continue rallying, but Bloomberg’s John Stepek warns that “while they can work well during the right conditions, the rest of the time, they’re mediocre at best.” Just take a look at our digit chart (way below), which shows that commodity returns have been negative over the past decade — and was the worst-performing major asset class.