Former Goldman Sachs Commodities Chief: AI Capital Misallocation Poses Hidden Risks, Old Economy Revenge Not Over Yet
0xBroomberg
Jeff Currie, former head of global commodities research at Goldman Sachs, argues the commodity supercycle that began in October 2020 is far from over — energy's ~3% weight in the S&P 500 should revert to 10–15%, with the gap surrendered by an overvalued AI sector.
What does "the revenge of the old economy" mean?
Currie frames the current landscape as "the revenge of the old economy": physical hard assets — energy, metals, mining — are chronically under-owned, while AI-linked equities are severely overvalued.
This means → energy sits at roughly 3% of the S&P 500; Currie sees fair value at 10–15%, with the difference ultimately ceded by the tech sector.
He warns that hyperscale data-center operators' current capex pace mirrors the 2014 mining and oil over-expansion — quietly planting the seeds of the next capital-misallocation cycle.
Why does this pattern "repeat roughly every 12 years"?
Currie traces a decades-long chain: 1950s heavy construction → 1960s prices suppressed, capital chases the "Nifty Fifty" → old-economy investment stalls → 1970s commodity supercycle erupts.
In plain terms = every time the new economy overheats, capital collectively neglects the old economy; once the supply gap is large enough, commodities stage a "revenge" supercycle.
He stresses that the 1970s supercycle was not caused by the Arab oil embargo — the embargo was only a trigger; the seeds were planted when investment stopped in the early 1960s. He first coined the concept after the 2002 dot-com bust, thinking it was a one-off. He now calls it a systemic pattern.
Where exactly is supply falling short?
Refining margins are running nearly level with crude prices — a rare phenomenon rooted in chronic under-investment in refining capacity, compounded by damage to Russian refineries.
This means → crude prices stay capped not because oil is scarce, but because refining capacity is scarce.
Copper mines and oil fields are similarly starved of investment; no near-term signal points to the bottleneck easing.
What are the three demand engines?
De-globalization: defense spending expansion, critical-mineral reshoring, supply chains shifting from "just-in-time" to "just-in-case" buffer-stock models — every element is commodity-intensive, visible since the 2018 trade frictions, and now accelerating sharply.
Electrification: Currie corrects a common misread — renewables and nuclear power arose from the 1970s energy-security crisis, not the climate agenda. The phrase "energy transition" was coined by President Jimmy Carter in the 1970s, aimed squarely at energy security. Data-center demand now reinforces this logic further.
Currency debasement: massive fiscal redistribution has piled up debt, effectively diluting fiat purchasing power. In plain terms = more money printed, each unit worth less — hard assets benefit by default. Currie notes that rising gold prices are pushing central-bank reserves toward a quasi-gold-standard state by stealth.
How should an investor size a commodity allocation?
Currie recommends institutions target roughly 3% in commodities — volatility is high, so a small position already delivers meaningful exposure; the allocation can be raised modestly during a supercycle.
He cautions that purely quantitative models, leaning on negative correlation, suggest 20–30% — a level he considers too high.
This reflects a practical judgment: commodities' volatility profile means "small but sustained" beats "large directional bet."
Why does the shape of the futures curve matter more than the spot price?
When a commodity is scarce, the futures curve sits in backwardation — near-month contracts trade above far-month contracts. In plain terms = each roll is effectively a "buy low, sell high" trade, and roll yield alone can contribute roughly 30% returns.
Currie benchmarks against the Russia-Ukraine conflict: even though current oil prices are below that period's levels, investors who kept rolling have earned a cumulative 30–40% — entirely thanks to this mechanism.
The flip side is equally stark: in contango — where far-month contracts are more expensive — every roll erodes value. This is precisely why some retail investors who bought the United States Oil Fund (USO) in 2009 and 2020 lost money even as oil prices surged. Currie is now building a next-generation actively managed ETF or total-return-swap product designed to maintain long exposure while sparing investors the complexity of managing rolls themselves.
Content is for reference only, not financial advice.