Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Commodity weekly: Strongest performance since April driven by geo-risks and weather factors
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Commodities are heading for their best week since April, driven by geopolitical tensions and adverse weather
- The Russia-Ukraine escalation has raised geopolitical tensions beyond levels seen during the year-long conflict between Israel and Iran-backed militants
- Gold sees fresh haven demand, injecting momentum back into the market after an early November correction
- Crude oil also benefited, despite forecasts for ample supply and sluggish demand through 2025
Commodities are heading for their best week since April, driven by geopolitical tensions and adverse weather. The main focus across markets has been heightened tensions after Russia lowered the threshold for using its nuclear arsenal. This followed President Joe Biden's decision to allow Ukraine to use US-supplied missiles to strike Russia. Subsequently, Ukraine struck Russian targets with US and UK-made missiles, prompting Putin to respond by firing a new medium-range ballistic missile at Ukraine.
This escalation has raised geopolitical tensions beyond levels seen during the year-long conflict between Israel and Iran-backed militants. The dollar responded with its eighth weekly gain, while gold saw fresh haven demand, injecting momentum back into the market after an early November correction. Crude oil also benefited, despite forecasts for ample supply and sluggish demand through 2025.
Elsewhere, colder US weather increased power demand, driving US natural gas prices to a one-year high. Similar to cocoa's rally earlier this year due to weather-related production concerns in West Africa, coffee prices surged on fears over Brazil's 2025 crop, pushing Arabica coffee to a 13-year high. Rising wheat prices offset losses in corn and soybeans as the escalation stoked concerns about Black Sea region supply disruptions.
The Bloomberg Commodity Index, tracking 24 major futures markets, trades up 3% on the week, marking its best performance since April. Gains were led by energy and precious metals, including index heavyweights WTI and Brent crude, natural gas, and gold with cocoa and coffee also delivering solid performances.
European gas price surge sends a winter warning
Mounting supply risks and strong demand in Europe have pushed regional gas prices to approximately EUR 50/MWh or USD 15.4/MMBtu. Despite rising US prices, European consumers and industries are still paying 4.5 times more for gas than their US counterparts. The looming expiry of the Ukraine–Russia gas transit agreement on 31 December, which will not be renewed, has further driven prices upward as Europe secures LNG supplies over Asia.
European gas prices had already surged due to a period of unusually cold, windless weather, which cut renewable power generation and led to an early, rapid drawdown of storage across the region. With forecasts predicting a colder winter than in recent years, prices for summer 2025 gas have risen sharply, reflecting the need for higher prices to compete for LNG supplies and ensure robust inventory buildup ahead of the 2025/26 winter.
Gold gains fresh momentum, leaving silver behind
Precious metals, gold and silver, experienced a strong rally ahead of the US elections but reversed sharply as a surge in the USD and yields drove prices through key technical support levels. This pressured a market where hedge funds had maintained elevated long positions for months, particularly in gold. Weekly positioning data from the US Commodity Futures Trading Commission (CFTC) revealed that while hedge funds reduced long positions, there was little appetite for outright short selling. This supports the view that the weakness stemmed from reactive selling rather than a shift in the fundamental outlook for gold.
This week, a sudden escalation between Russia and Ukraine reignited momentum for gold. At the time of writing, the metal trades above USD 2,700, recovering USD 170 from the recent USD 250 correction. This marks its biggest weekly jump in 13 months, even as the dollar heads for an eighth consecutive weekly gain. The correction has also encouraged fresh physical demand as buyers gain confidence in gold’s ability to maintain the strong gains achieved earlier this year.
Despite the stronger dollar acting as a headwind, our bullish outlook on gold—and eventually silver—remains intact. An unsettled global landscape continues to drive investors toward gold, often regarded as a ‘dead’ asset offering no income but price appreciation. The US debt situation is expected to worsen under the Trump administration's unfunded spending on tax cuts, infrastructure, and defence. Additionally, central banks seeking to de-dollarize reserves and inflation concerns from tariffs are likely to offset any slowing pace of US rate cuts.
Cold weather snap and OPEC+ restraint give crude a temporary boost
Crude oil traded higher this week, supported by rising refinery margins for distillate products amid an incoming cold snap driving US natural gas prices to a one-year high, heightened Russia–Ukraine tensions, and doubts about OPEC+ unwinding voluntary production cuts in 2025 due to market oversupply. However, the 2025 outlook remains non-supportive for crude prices, with lacklustre growth not only in China but also in Europe, where economic data continues to weaken. In addition, robust production from non-OPEC+ producers may lead to a crude surplus exceeding 1 million barrels per day, according to a recent report from the International Energy Agency.
Still, some upside risks remain, including a potential Trump administration adding fresh sanctions on Iran and Venezuela and geopolitical risks intensified by the Russia–Ukraine war and the Israeli conflict with Hamas and Hezbollah. We see limited risk of a resurgence in US drilling activity, as US crude production is unlikely to increase significantly unless oil producers find it profitable. With WTI currently trading below USD 70, the incentive for further production increases remains constrained. As a result, we view natural gas as a more significant opportunity, with strong global demand making inexpensive US natural gas highly attractive worldwide.
Industrial metals weighed down by tariffs and growth concerns
The industrial metals sector traded higher this week despite challenges from weak Eurozone growth, geopolitical tensions driving up the dollar, and risks to demand from proposed tariffs on imports, particularly from China—a move that could disrupt global trade and reduce demand for industrial metals like copper and aluminium. Furthermore, copper has been impacted by fears of a slowdown in the energy transition following Trump’s statement that he would "rescind all unspent funds" under the Inflation Reduction Act (IRA), the Biden-Harris administration's flagship climate law.
We believe the initial negative price response addresses near-term risks, as infrastructure spending plans and potential deregulation could boost demand for metals in the medium to long term. Additionally, tariffs imposed by Trump on China are likely to trigger further support measures from Beijing, while the supply outlook for the coming years could be constrained by a lack of new mining projects. Notably, copper stocks at warehouses monitored by the three major futures exchanges have continued to decline. Over the past five weeks, particularly steep drops in Shanghai-monitored stocks have reduced total stock levels to 473,000 tons—the lowest since May.
Recent commodity articles:
19 Nov 2024: Gold and silver rise on Russia-US tensions
18 Nov 2024: COT: Limited dollar demand despite strength; Acclerated metals selling
11 Nov 2024: COT: Speculators bought energy and grains, sold gold ahead of elections
8 Nov 2024: Commodity weekly: Mixed response to Trump 2.0
6 Nov 2024: Podcast: US election and the market reactions, including commodities
6 Nov 2024: Trump and Republican victories spark commodity decline
4 Nov 2024: COT: Speculators flock to dollars, exit commodities ahead of US election
1 Nov 2024: Commodity weekly: Some weakness seen ahead of critical week
31 Oct 2024: Crude prices seek stability ahead of key support and US elections
30 Oct 2024: Will the US election result spark a gold correction?
29 Oct 2024: Podcast: Electrification's surge impact on commodities and equities
28 Oct 2024: COT: Crude length cut; silver and platinum see strong demand
25 Oct 2024: Commodity weekly: Market jitters on the rise ahead of U.S. elections
23 Oct 2024: Crude prices stalled by two-sided market risks
22 Oct 2024: Gold and silver's remarkable run in four charts
22 Oct 2024: Podcast: The Trump trade enters the metal market
21 Oct 2024: COT: Dollar shorts squeezed; Shift in commodity exposure from energy to metals
18 Oct 2024: Commodity weekly: Gold's record-breaking run continues
17 Oct 2024: Copper prices decline amid doubts about China stimulus impact
16 Oct 2024: How high can gold and silver rally?
8 Oct 2024: Podcast: Navigating market shifts: Fed rate cuts, commodities and rising food prices
8 Oct 2024: Video: These commodities might be impacted by the US election
7 Oct 2024: Crude oil surge caps strong four-week rally for commodities
7 Oct 2024: COT: Broad buying momentum persists, led by Brent, copper and grains
2 Oct 2024: Q3 2024 Commodity Outlook: Gold and silver continue to shine bright
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