MacroVoices #399 Ole S Hansen: Still Bullish Commodities

Episode Summary

Executive Summary: Macro Voices episode 399 centered on Ola Hansen’s view that the commodity super cycle remains intact, driven more by tight supply, fragmented production, and structural inflation than by demand. The discussion covered backwardation, ETF roll yield, gold’s rate-sensitive rally, copper’s long-term scarcity, crude oil’s geopolitical risk, and how current equity weakness contrasts with commodity strength.

Main Topics: Commodity super cycle remains intact (Priority: 5/5): Ola Hansen argued that the broad commodity bull market has paused but is not over. He emphasized tight supply, production fragmentation, green-transition demand, and structurally higher inflation as the main supports. Structural inflation and rate expectations (Priority: 5/5): The interview focused on five-year inflation expectations, SOFR pricing, and the idea that inflation is settling above the Fed’s 2% target, which supports commodities and changes the short-end rate outlook. Backwardation, contango, and investor returns (Priority: 5/5): A major educational segment explained why commodity futures structure matters. Backwardation generates positive roll yield for ETF/futures investors, while contango can destroy returns even when spot prices rise. Gold’s rally and the role of real yields (Priority: 4/5): Hansen said the recent gold surge was driven mainly by short covering after the Israel conflict, with longer-term support coming from peak-rates expectations, funding costs, and rising concerns about financial stability. Industrial metals and energy transition constraints (Priority: 4/5): Copper and aluminum were highlighted as strategically important for electrification and grid buildout, but current prices and mining constraints may be too low to incentivize the production needed for the energy transition. Crude oil geopolitics and spare capacity (Priority: 5/5): The hosts debated the odds of Iran escalation, the size of spare oil capacity, and whether Middle East conflict could take significant supply offline. Hansen was more skeptical of a major oil shock than Eric Townsend. Equity market weakness versus commodity leadership (Priority: 3/5): In the post-game, the team reviewed bearish technicals in the S&P 500 and Nasdaq, while noting relative strength in uranium, defense, nuclear, and selected commodity-linked themes.

Key Arguments: The commodity super cycle is still alive, but it is being driven primarily by supply constraints rather than demand growth. Inflation is likely entering a new structural regime, with market pricing showing higher long-term inflation expectations than the Fed’s target. Backwardation matters because investors in commodity ETFs/futures can earn roll yield, which can materially improve returns even if spot prices are flat or modestly down. Gold’s recent strength was initially a short squeeze triggered by geopolitical stress; longer-term upside depends on peak rates, lower real yields, and renewed institutional allocations. Copper remains strategically underpriced relative to the scale of electrification, grid expansion, and energy-transition needs. Crude oil is constrained by spare capacity and OPEC+ discipline, but Hansen believes geopolitical risk premiums are still capped unless supply is physically disrupted. Eric Townsend argued that Middle East escalation risk is underpriced and could become much more severe if Iran, Israel, and the U.S. enter a broader conflict. Post-game technicals showed major equity indexes weakening below key moving averages, while crude, gold, uranium, and some defensive themes showed relative resilience.

Data Points: Macro Voices episode: 399 - Episode number and production date announced at the start of the show Production date: October 26, 2023 - Episode release date S&P 500 futures weekly change: -306 bps - Macro scoreboard week over week S&P 500 futures close: 4,209 - As of Wednesday, Oct. 25, 2023 U.S. dollar index weekly change: -2 bps - Macro scoreboard U.S. dollar index level: 106.54 - Dollar remains near multi-month highs WTI crude oil weekly change: -215 bps - Macro scoreboard December contract WTI crude oil level: 85.39 - December contract level RBOB gasoline weekly change: -258 bps - Macro scoreboard December contract Gold weekly change: +142 bps - Macro scoreboard December contract Gold level: 1,996 - December gold contract Copper weekly change: flat - Macro scoreboard Copper level: 3.59 - Macro scoreboard, described as consolidating near 52-week lows Uranium weekly change: +446 bps - Macro scoreboard Uranium level: 73.75 - Macro scoreboard U.S. 10-year Treasury yield weekly change: +5 bps - Macro scoreboard U.S. 10-year Treasury yield level: 4.96% - Macro scoreboard, testing the 5% level Five-year forward inflation swap: Highest since 2015 - Used by Hansen to argue inflation expectations are rising One-year borrowing/funding cost: Just over 5% - Hansen linked higher carry costs to commodity ETF and gold positioning Bloomberg spot commodity index correction: Almost half the gain since the 2020 low - Longer-term commodity price backdrop Bloomberg Commodity Index five-year spot return: 46% - Spot index performance over five years Bloomberg Commodity Index five-year total return: 5% - Roll costs crushed returns in contango Bloomberg Commodity Index from 2021 to present spot return: 29% - Recent period after market structure flipped Bloomberg Commodity Index from 2021 to present total return: 45% - Backwardation/roll yield improved returns Orange juice annual gain: More than 100% - Soft commodities rally driven by Florida supply issues Cocoa price level: 44-year high - Mentioned by Hansen as an extreme move Sugar price level: 12-year high - Soft commodities strength Gold ETF holdings trend: Downward since 2021 - Accelerated decline over the last 3-4 months before stabilizing Oil spare capacity: Just over 6 million barrels/day - Hansen’s estimate, with most in Saudi Arabia and UAE Saudi Arabia spare capacity: About 3 million barrels/day - Estimated share of total spare capacity UAE spare capacity: About 1 million barrels/day - Estimated share of total spare capacity Gold short covering: 21,000 contracts added to the long side - COT discussion after the Israel conflict

Pivotal Quotes: "the commodity super cycle is still alive" — Ola Hansen: His core thesis on the outlook for commodities "if you're buying crude oil today and you expect no change in price in a year's time, you would make 10% plus" — Ola Hansen: Explanation of backwardation and roll yield "I think that the risk of escalation with Iran is much lower than I think" — Ola Hansen: His disagreement with Eric Townsend’s more bearish geopolitical view

Implications: Listeners should expect commodities to remain strategically important as inflation, supply tightness, and energy-transition demand persist. But returns will depend heavily on futures curve structure, geopolitics, and rate paths rather than just spot prices.