Investors are scrambling to rebalance their portfolios in preparation for a possibly prolonged period of increased commodity prices, as Russia’s invasion of Ukraine triggers wild swings in the price of raw resources that threaten to worsen inflation and stifle economic development in the region.
Wild swings in commodity prices have been the norm in recent weeks, as the conflict in Ukraine and related sanctions against Russia have contributed to pushing oil prices to 14-year highs and natural gas prices to near-record levels. Crop prices such as wheat and copper are reaching all-time highs, while the price of nickel has more than doubled, forcing the London Metals Exchange to suspend nickel trade earlier this week.
With the U.S. economy already feeling the strain of a wide, post-COVID-19 increase in demand and the prospect of a swift settlement to the West’s stalemate with Russia in question, some investors are wagering that high commodity prices will continue to be the norm for at least the foreseeable future.
Inflows into commodities-focused exchange-traded funds and mutual funds have totaled $10.5 billion since the beginning of this year, with a $2.8 billion gain recorded in the week ending March 2, which was the largest one-week positive inflow since July 2020, according to data from the Investment Company Institute.
When oil prices remain high for an extended period, the probability of a recession resulting from a dramatic reduction in consumer expenditure increases, according to Robert Schein, chief investment officer at Blanke Schein Wealth Management.
“If oil prices remain far over $100 per barrel for a few months, the consumer and the economy will be able to endure this; but, if oil prices remain at or above $100 per barrel for more than six months, the likelihood of a recession will increase,” he warned.