It’s been a tumultuous decade for the commodities markets…

Prices have fallen and fallen… and then they fell some more. The pandemic kicked those trends in overdrive. But something’s happened in recent months.

Prices began turning around. And in recent weeks, that led to a surprising event…

A certain commodity index erased all of its pandemic losses. It hit a new 52-week high in the process. And history suggests that more gains are on the way.

Double-digit profits are possible over the next year. Even more important, this could be the start of the next great commodity boom.

Let me explain…

Saying “commodities” is a bit like saying “stocks.” The term is vaguer than most people realize.

You can group stocks in plenty of ways to form an index. And that’s true of commodities too.

The main commodity benchmark is the Bloomberg Commodity Index. It’s like the S&P 500 of commodities. But I prefer to look at a better commodity index…

It’s called the United States Commodity Index Fund (USCI). It’s the “smart” way to profit in this sector.

You see, USCI looks at 27 different commodities… but it only holds the 14 that it likes best at any given time.

First, it holds the seven commodities with the strongest uptrends. Then, it picks seven more that have the greatest “backwardation.” (That’s a specific situation that can happen in the futures market. The exact details are a bit complicated – just know that owning these commodities can boost your long-term returns.)

Thanks to this analysis, USCI becomes a better way to track the commodity markets. While the benchmark Bloomberg Commodity Index has lost money since 1990, this “smart” index is up more than 1,100%.

That’s incredible outperformance on its own. And USCI has a history of performing its best when the trend is moving higher.

That’s happening now. USCI recently hit a new 52-week high. Take a look…

USCI has been in a steady uptrend since bottoming in March 2020. And it just broke out to new highs. That makes it one of the last markets to fully recover from the pandemic.

Even more, this kind of breakout is a great sign for investors. To see this, I looked at USCI’s underlying index going back to 1990. We can see the outperformance following this kind of move in the table below…

This “smart” index has been an impressive mover since 1990… returning 9% a year. But buying after a breakout like this tends to yield even better returns…

Similar setups led to 4% gains in three months, 7% gains in six months, and a solid 12% gain over the next year. Those are impressive results for “boring” commodities.

In short, history shows that we are likely in the early innings of a new bull market in commodities. USCI has finally made a full recovery from the pandemic. And more gains are likely in the coming months.

Good investing,

— Chris Igou

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Source: Daily Wealth