The Great Commodity Reset

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• U.S. oil and gas production is now declining after 15 years of shale-driven growth.
• Historical patterns show major commodity bull markets follow monetary regime changes.
• Most investment portfolios are dangerously under diversified despite appearing balanced.

For more than a decade, commodities have been overlooked in favor of high-growth sectors like tech and financial assets. This shift has left many portfolios heavily concentrated in financialized assets—creating risks that few investors have accounted for.

What if we're on the verge of a historic reversal?

Adam Rozencwajg, a leading expert in natural resource investing and co-founder of Goehring & Rozencwajg Associates, believes we are at a critical turning point—one that mirrors past commodity supercycles in 1971 and 1999. He argues that fundamental supply constraints and monetary policy shifts set the stage for a multi-year bull market in real assets.

"The equivalent of the doomsday clock of how many minutes we are from a monetary regime change, I would say we're at 11:59.  It seems like we're awfully close," says Adam.

With key commodities like oil, natural gas, and uranium facing structural supply issues, the potential for a long-term revaluation is growing. Investors who fail to recognize this shift could find themselves unprepared for a rapidly changing market.

The end of an era

"The U.S. has been the number one driver, in fact, really the only driver of global oil supply growth in the last 15 years," Adam explains. "We estimate that about nine-tenths of every barrel of new demand has been met by a shale barrel in the last 15 years or so."

But that era appears to be ending. Recent data shows December-to-December U.S. crude oil production has likely turned negative, with all shale basins except the Permian already in sustained decline—exactly as Adam’s AI models have predicted since 2018.

The supply constraints extend beyond oil. Natural gas production in the U.S. has declined by 2-3% year over year despite growing demand. Meanwhile, uranium faces challenges and production disappointments in Kazakhstan and Canada.

"We uncovered this technology, and then we raised a ton of capital to get after it," Adam says of the shale revolution. "Both of those things were deflationary. That's in the rearview mirror."

This shift represents a watershed moment: the key factor that suppressed commodity prices for over a decade is now reversing course.

Currency regime catalysts

When examining commodity bull markets throughout history, a clear pattern emerges. Major upswings typically coincide with significant monetary regime changes.

"Every major commodity, real asset, relative market bottom was ended, and a new bull market started based on a change in the monetary regime system," Adam points out.

Consider the historical precedents:

• In the 1920s, European countries suspending the gold standard led to a commodity surge
• Nixon's closure of the gold window in 1971 preceded the 1970s commodity boom
• The 1999 aftermath of the LTCM crisis triggered currency shifts that set up the 2000s commodity supercycle

Today, potential catalysts are emerging from multiple directions. Treasury Secretary Scott Bessent is exploring options, including revaluing America's gold holdings. Simultaneously, BRICS nations are developing alternatives to dollar-based trade settlement.

Interestingly, Nixon's 1971 action didn't weaken the dollar as many economists predicted. Following Nixon's closure of the gold window, conventional wisdom suggested the dollar would decline. Instead, the dollar's role in the global financial system expanded significantly. As Adam explains: "If you stood in 1971 and Nixon had just closed the gold window... and you canvassed economists... everyone would say, 'Well, that's it, say goodbye, not sustainable anymore,' and yet the dollar gained relevance in terms of a global reserve currency." This pattern of monetary shifts producing unexpected consequences forms a key part of his analysis.

"I suspect the prices will move quite a bit higher from here," says Adam of gold, which has already reached new highs even without significant Western investment participation.

Predictable market rhythms

Commodities and financial assets dance in opposing rhythms spanning decades, a pattern that's been consistent for over a century.

"If you look at the ratio of commodity prices to stock prices, that tells a really interesting long-term story," Adam explains. "We took that ratio back all the way to 1900. And what it shows is that commodities and real assets move in these huge cycles: When they get really cheap, you should buy them. When they get really expensive, you should sell them."

These pendulum swings have created major commodity bottoms in 1929, 1969, 1999, and potentially today.

This pattern emerges from what economists call the "carry trade" - a concept Adam references from the book "The Rise of Carry" by Tim Lee, Jamie Lee, and Kevin Coldiron. During carry trade periods, investors borrow cheaply to invest in higher-yielding assets, driving up stock valuations while commodities remain undervalued.

Adam notes a fascinating constant throughout history: "If you look over thousands and thousands of years, the increase in supply of gold above ground... has basically mirrored the long-term real GDP rate."

The historical lesson is clear: these imbalances correct themselves, often violently. The 1920s, 1960s, and 1990s all saw extreme market concentration followed by dramatic reversals favoring commodities—a pattern we may witness today.

Energy security risks

Energy independence is far more precarious than most investors realize. Despite being touted as "energy independent," the U.S. faces significant vulnerabilities.

"Natural gas prices in the U.S. today remain 80% below the world price," Adam points out. This extreme discount creates both competitive advantages and potential risks.

The U.S. consumes almost as much energy from natural gas as from crude oil, yet few appreciate how this price advantage underpins everything from manufacturing to America's AI development advantage.

Looking abroad, Europe's experience serves as a cautionary tale. "Germany is in the process of deindustrializing itself as we speak because of mistakes they've made in their energy program," Adam observes.

With U.S. LNG exports increasing and AI data centers driving domestic demand, the pressure on natural gas supplies continues to build. Add declining production, and the picture becomes concerning.

"I don't think the U.S. will be overly keen to sacrifice its AI industry on the altar of cheap European gas," Adam warns. This highlights the strategic importance of energy resources in an increasingly fragmented world.

Portfolio strategy shift

For investors, the implications of these shifts are profound. Commodity undervaluation relative to financial assets has reached extreme levels, similar to those seen in 1929, 1969, and 1999.

"In periods like 53-54 and persisted all the way to 68, about 13 years... if you owned a basket of commodity equities over that period of time, you actually performed in line, slightly better than the S&P 500," Adam notes.

Contrary to popular perception, commodities haven't been a performance drag since becoming cheap relative to stocks in 2015. Returns have roughly matched the S&P 500, making the risk-reward ratio increasingly favorable.

Many investors believe their portfolios are adequately diversified. Still, Adam warns otherwise: "I worry that in the event we do get a carry unwind, people are going to realize their portfolios are not nearly as diversified as they think they are. In fact, they're what I would call Texas hedged: You think you're hedged, but you're really doubled down. That's the state of the world today."

Technology, private equity, and hedge funds may appear different but often share the same underlying risk factors—a vulnerability that commodity exposure can help mitigate.

Decade positioning

The weight of evidence points to a major turning point in commodity markets. Supply constraints, monetary regime changes, and extreme undervaluation suggest we're approaching a significant reversal that could last 10-15 years.

While many investors remain fixated on technology and financial assets, historical patterns suggest now is the time to reconsider commodity allocations. The choice is clear: prepare for a new commodity cycle or risk being on the wrong side of a major market shift.

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This is based on an episode of Top Traders Unplugged, a bi-weekly podcast with the most interesting and experienced investors, economists, traders and thought leaders in the world. Sign up to our Newsletter or Subscribe on your preferred podcast platform so that you don’t miss out on future episodes.