Commodities are undervalued

TopdownCharts
11-12

Here’s one key asset class that’s out-of-fashion, overlooked, and undervalued.

(and mostly misunderstood)

By my metrics, Commodities are cheap [and I mean commodities at the asset class level, or specifically the *diversified* GSCI (Light Energy) Commodities Index].

But we all know that cheap can stay cheap, get cheaper, and the usual quip that it might just be cheap for a reason…

So here’s a few reasons why commodities might be one of the most important asset classes to watch into 2026, and why valuations may be more relevant now:

  • Valuations: as noted, commodities are cheap by my indicators, and most importantly; the indicator has gone to cheap levels and ticked up off the lows.

  • Technicals: the index I mentioned has started to make an initial move on breaking out of its big trading range, off a cyclical base building process, and with bullish breadth divergence.

  • Sentiment: aside from gold, investors are still pretty bearish, lightly allocated, and largely unenthusiastic on commodities in general.

  • Supply: we have just been through what can only be described as a commodity capex depression, following the big boom-bust super cycle of the 2000’s there was a glut of supply and big drop-off of investment in new supply.

  • Thematic Demand: with things like the energy transition, rise of AI and robotics, infrastructure (re)building, space, and geopolitics; there is set to be tremendous demand for industrial metals and energy in the coming years.

  • Monetary Conditions: successive global waves of monetary easing present upside risk to cyclical demand + asset prices in general …but also a weaker dollar (bear market in US$ = my view) will help commodities priced in USD.

  • Cyclical Demand: as previously outlined, I think there is a good chance we see a global economic reacceleration on the horizon and that’s going to float all boats in the commodity space.

  • Inflation Protection: (but) reaccelerating global growth is therefore likely to lead to inflation resurgence, and commodities are intimately interlinked with the inflation story [and provide a direct hedge against inflation risk].

So whether it’s from a macro point of view, an upside opportunity point of view, or even a defensive standpoint — commodities are going to be perhaps *the* key asset class to watch both now and especially into 2026.

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