Why commodities are dying the death of 1,000 cuts

Gold Bar And Coins

Every single bullish case for commodities appears to have been proven wrong.

Commodities are the gift that keep on not giving.

The sector is in the throes of an 'annus horribilis', having gotten wrecked over the past few years despite massive liquidity that should have boosted their value. Bullish investor after bullish investor has tried to call a bottom, in a set of calls that now appear ill-conceived and money losing.

In the past week, the S&P GSCI Commodity Index has dropped 3.4 in the past week, as crude oil plunged 7 percent to hit multi-month lows, and a host of metals fell alongside it.

Read More Stocks put to the test in week ahead

That, of course, hardly marks the first big drop for the alternative investment group. That widely watched commodity index has fallen 17 percent the last three months, and a whopping 42 percent in the past two years.

It's not just an energy issue, either. Copper, platinum, lumber, coffee, sugar, wheat, oats and lean hogs are all down double-digit percentages this year. While each specific commodity obviously responds to its own distinct supply-and-demand dynamics, a few fundamental factors appear to be weighing on commodities as a whole.

Read More Commodities point to a stock market correction

First of all, the U.S. dollar has risen nearly 8 percent this year against a basket of major currencies, and has rediscovered some of its strength in the past three months.

A strong dollar tends to be bad for commodities, as it should mean that it takes fewer dollars to buy the same amount of a given fixed asset.

And in fact, many investors bought commodities to get protection from a Federal Reserve stimulus-stoked rise in inflation that never came. As the Fed ended its quantitative easing programb—nand now appears months away from raising ratesb—bwhat now appears to have been a massive bubble in commodities like gold has slowly popped.

But Fed fears didn't form the only bull case for commodities. Others maintained that the global economy would heat up, leading to greater demand for industrial commodities like oil and copper.

Instead, Europe has been a mess, and that great commodity consumer China has seen its economy continue to slow.

The losses in the complex have been dramatic indeed.

The Astenbeck commodities fund managed by famed trader Andy Hall tumbled 17 percent in July. And the Wall Street Journal last week that private equity firm Carlyle Group saw the holdings of a commodities fund it owns plummet from $2 billion to $50 million, due to bullish bets on a host of commodities.

Now, the fund is "re-positioning" to take advantage of an "enormous global opportunity," a representative for the firm told CNBC earlier this week.

Those who have lost money in commodity funds over the past few years as they watched stocks soar might be forgiven for retaining a bit of skepticism.

Read More Carlyle Group battered by commodities rout: WSJ

 —By CNBC's Alex Rosenberg. CNBC's Javier David contributed reporting. 

Watch " Futures Now " Tuesdays & Thursdays 1 p.m. ET exclusively on FuturesNow.CNBC.com !

JefferiesAnd the Best Place to Work in the global financial markets 2017 is...

Register for Financial Markets News Alerts