Historical commodity supercycles are not smooth upward trends but are characterized by a series of distinct, sharp price spikes. This "bubbling cauldron" nature, driven by investor fear and subsequent underinvestment, can mislead participants into thinking the cycle is over prematurely.
The silver premium in Shanghai is driven by strong retail demand. The Chinese public is hoarding it because it serves as both a critical industrial input for solar panels (a key national industry) and an affordable store of value, unlike the more expensive gold.
The current commodity supercycle is intensified because traditionally asset-light tech companies (hyperscalers) are now massive consumers of physical resources. They are building data centers and competing for materials like copper, fundamentally altering their business models and commodity demand.
This supercycle is a direct result of three global policy shifts. The 'war on free trade' forces resource stockpiling. The push for energy security drives electrification. Finally, fiscal transfers to lower-income groups (redistribution) boost demand for physical goods.
Despite a compelling fundamental story for commodities, significant capital has not entered the sector. Investors, scarred by past downturns and drawn to high returns in tech, are hesitant to fund new production. This capital starvation is the core reason the supply crunch will likely worsen.
Commodity capital expenditure booms historically occur during high-rate environments, not low ones. High rates signal an undersupply in the physical economy, indicating that capital must be deployed into 'asset-heavy' industries to meet demand, which in turn leads to a broad repricing of physical assets.
A rapid supply increase for metals is unlikely, even with government support. The West outsourced toxic downstream processing to China decades ago due to environmental concerns ('NIMBY'). Reshoring this production requires overcoming the same public hurdles with expensive new technologies, ensuring a long supply response.
The surge in metals isn't just inflation (debasement). It's driven by emerging markets diversifying away from US dollar assets (de-dollarization) after Russia's assets were frozen, and a broader hoarding of physical assets that can't be seized amid rising geopolitical tensions.