commodity futures and cost of capital

“Commodity futures are expected to be negatively correlated with capital assets (i.e stocks and bonds) because of the tradeoff between cost of capital and cost of raw materials” can someone elaborate on this in simple terms.

This is just a guess, but think of commodity prices as a proxy for inflation. Higher inflation increases cost of capital which dirves down the value of capital assets.

commodities are inputs to production

I do recall that most commodities have very low correlation to stock and bond returns, roughly around 0, not really negative, or at least not substantially so. Energy is likely to be an exception, because it is such a widely required input.

alphabound Wrote: ------------------------------------------------------- > This is just a guess, but think of commodity > prices as a proxy for inflation. Higher inflation > increases cost of capital which dirves down the > value of capital assets. thanks