Commodities Relative to M2 Are Near Historic Lows as Inflation Regime Shifts

Commodities remain historically cheap relative to the size of the U.S. money supply.
Over the past decade, M2 has expanded far faster than commodity prices even as years of underinvestment have constrained supply across several major resource markets.
At the same time, the macro environment appears to be shifting toward a more persistent inflationary regime.
That combination creates an increasingly interesting setup for hard assets.
During the inflationary cycle of the 1970s, commodities emerged as one of the strongest-performing asset classes as investors sought protection from declining purchasing power and rising input costs.
Today’s environment is not identical, but the ingredients are beginning to rhyme: expanding money supply, constrained supply growth and renewed inflation pressure.
If that relationship continues to normalize, commodities could have significant room to outperform other asset classes over the coming cycle.