Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Global Head of Macro Strategy
Commodities weekly: energy market strength and Trump rhetoric fuel ongoing surge
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Commodities have emerged as one of the winners so far this year with gains handsomely exceeding those seen in US and global equity markets
- Several factors, including deglobalisation, increased defence spending, de-dollarisation, and concerns over debt and fiscal stability remain key long term bullish drivers
- The most notable observation this week was the opposite forces seen in US and European natural gas prices, narrowing the price spread by 27%
- Crude remains nervously stuck in a narrow range, copper shows sign of short-term topping out, while gold consolidates ahead of USD 3000
"There are decades where nothing happens; and there are weeks where decades happen" is a quote often attributed to Vladimir Lenin. Whether or not it originated from him, it aptly describes the recent and rapid changes initiated by the Trump administration in Washington. In our most recent Commodity Weekly, which highlighted how broad strength had driven the commodities sector to a +2-year high, we outlined several reasons for maintaining our long-term positive outlook for commodities.
Several factors, including deglobalisation, increased defence spending, de-dollarisation, and concerns over debt and fiscal stability, have been reinforced by recent developments in Washington. President Trump’s inward focus and attempts to “Make America Great Again” are likely to drive other parts of the world in the opposite direction. The failure to generate growth through his preferred use of tariffs may ultimately result in losses for everyone, while potentially emboldening non-democratic regimes globally.
With this in mind, the near future points to heightened uncertainty. So far, commodities have emerged as one of the winners amid increased demand for key raw materials, which could face supply challenges. This past week, the Bloomberg Commodity Total Return Index reached a fresh 27-month high, with the year-to-date gain at one point exceeding 10%, before some end of week profit taking began to emerge. This performance comfortably outpaces the US stock market, where the S&P 500 Index despite reaching a fresh record has only managed a gain of 3.4% so far this year, while the MSCI World Index trades up around 4.5%.
On the week, the most notable observation was the opposite forces seen in US and European natural gas prices, with US futures trading sharply higher in response to strong winter heating demand and LNG exports hitting record highs. In Europe, meanwhile, the price of the Dutch TTF benchmark slumped to a one-month low below EUR 50/MWh, with traders focusing on developments in Ukraine, incoming mild weather reducing demand, and record US LNG exports offering some relief. In the past couple of weeks, the spread between the two regional-focused futures markets narrowed by 27%; however, the price European and Asian consumers and industries pay compared with their US counterparts is still more than three times higher.
Crude oil remains stuck in the middle
The two major crude oil benchmarks in New York and London were heading for their best weekly gain since early January, and at this time, we believe the market has adopted a relatively neutral but nervous stance on prices, with Brent trading near the middle of our expected range for the year between USD 65 and USD 85. Supply is in some places being disrupted, with the most recent being Kazakh output after a Ukrainian drone attack on Russia, while potentially increased elsewhere. Most notably, the prospect of a resumption of exports from Iraq’s Kurdistan region through the Iraq-Ceyhan connection, a pipeline which, prior to being halted in 2023, transported about 450,000 barrels a day.
In addition, the market also has to deal with an increasingly erratic message flow from Washington, which on one hand has raised the prospect of increased US production, while on the other causing concerns about the outlook for global growth and demand. To top it all off, we are also waiting for an OPEC+ decision on output; however, with limited clarity on the impact of current US threats and policies, as well as the outlook for key producers such as Russia and Iran, we believe the group is likely to tread with caution, leaving production unchanged while once again reiterating the need for compliance.
Copper stock build point to short-term top
The tariff-led squeeze in New York traded copper prices culminated last week when the High Graded futures prices spiked above USD 4.8 per pound, a nine-month high, in the process widening the premium in New York over London to near 50 cents per pound or more than USD 1,000 per tonnes using the London quotation. Since then prices have started to drift lower with the premium narrowing to 27 cents per pound, still elevated compared with normal difference around 5-10 cents.
Meanwhile, copper stocks held at warehouses monitored by the three major futures exchanges have seen a strong build-up in the past three weeks, with the total hitting a five-year high this week at 616.4k tonnes. Inflows to LME (+12.5k) and SHFE (29.8k), while COMEX saw a small reduction of 2.4k tonnes. Events highlighting the risk, recent price actions have been mostly about COMEX-related buying to preempt tariffs, more than actual end-user demand, raising the risk of a short-term top in the market.
Silver keeps pace as gold consolidates ahead of USD 3000
Bullion’s rally extended to an eighth week, with underlying momentum and 'fear of missing out' being mixed with continued end-user demand from central banks and individual investors seeking protection against a world looking increasingly unstable, with President Trump spewing out statements faster than they can be fact checked while he attempts to break down the world order that has been in place for decades, driven by his inward-looking focus.
This past week, spot gold reached a fresh record high near USD 2,955 per ounce before reversing lower on long-awaited profit-taking, potentially triggered by US Treasury Secretary Scott Bessent dismissing speculation that the government would revalue its bullion holdings from USD 42.22 per ounce to market value—a move that would increase the collateral value of the Treasury’s gold reserves by around USD 740 billion.
We maintain our bullish price outlook and note silver has managed to keep up with the latest rally in gold, amid continued concerns about how tariffs would impact metals traded on the COMEX metals market in New York. In the past week, we have seen premiums in New York over spot prices in London starting to ease, but while bullion traders can go to the Bank of England to lease gold as a lender of last resort, silver does not have this option, leaving it more exposed; hence the still elevated and overall price-supportive premium in New York.
Several of our long-term drivers for commodities strength, some of which are mentioned above and in this update, directly impact investment metals. The most important being de-dollarisation demand from central banks, fiscal debt concerns, and geopolitical tensions. Having rallied almost non-stop since mid-December, gold can correct lower by more than 100 dollars to USD 2,818 without damaging the overall bullish setup.
This past week, we even saw demand for bullion-backed exchange-traded funds heading for their biggest weekly rise in holdings since 2023, a sign that investors are increasingly prepared to pay up in order to get exposure to a rally that has set its sails towards USD 3,000, and most likely beyond. However, in order for that to occur, the market will be keeping an eye on incoming US data and whether recent weakness will continue to spread, potentially raising the prospect for rate cuts while softening the dollar.
Recent commodity articles:
18 Feb 2025: COT report: crude, gold and grains see mild profit taking
5 Feb 2025: Broad Strength Drives Commodities sector to 26-month High
4 Feb 2025: Crude Oil Wipes Out 2025 Gains as Tariffs and Demand Weighs
3 Feb 2025: COT Report: Mixed Week Seen Ahead of Trump's Tariff Offensive
1 Feb 2025: YouTube: Joining Kevin Muir on The Market Huddle podcast
31 Jan 2025: Commodities weekly: Strong January led by precious metals
29 Jan 2025: Agriculture sector rally led by coffee, corn and cattle
27 Jan 2025: COT Report: Commodity buying extends to fourth week
24 Jan 2025: Commodities weekly: Trump tariff threats and energy agenda in focus
23 Jan 2025: Crude oil weakens amid tariff uncertainty
22 Jan 2025: Gold and silver see fresh gains as Trump 2.0 era begins
20 Jan 2025: COT Report: Elevated commodities longs face short-term risks
17 Jan 2025: Commodities weekly: Strong January rally pauses ahead of Trump
15 Jan 2025: Q1 2025 Commodity outlook: A bumpy road ahead calls for diversification
14 Jan 2025: COT Report: Hedge fund long jumps to 17-month high led by crude, gas and metals
13 Jan 2025: Crude oil rally amid winter demand and Russian sanctions
10 Jan 2025: Commodities weekly: Strong start to the year led by energy and metals
7 Jan 2025: COT Report: Managed money's year-end positioning in forex and commodities
20 Dec 2024: Silver's resurgence in 2024: A precious metal with an industrial edge
17 Dec 2024: Investors cash in: Gold and silver see year-end profit taking
17 Dec 2024: Podcast: A wild ride in 2025 awaits
16 Dec 2024: COT Report: Agriculture in demand; Traders lift bets against the euro
13 Dec 2024: Commodities weekly: The forward curve and impact on returns
10 Dec 2024: Brazil's coffee crisis pushes Arabica to all-time high
9 Dec 2024: COT Report: Speculators bought crude and gold: euro shorts reach 4-year peak
6 Dec 2024: Commodities weekly: Copper rises on China optimism; OPEC delay signals crude weakness
3 Dec 2024: COT: Mixed week in commodities as dollar buying continued
Podcasts that include commodities focus:
18 Feb 2025: Europe is on fire
5 Feb 2025: Mag 7 risks underappreciated?
3 Feb 2025: If new Trump tariffs stick, markets have only just begun to react
31 Jan 2025: Does the market think Trump is bluffing?
29 Jan 2025: The DeepSeek winners emerge
27 Jan 2025: DeepSeeking missile strikes global markets
24 Jan 2025: Four days in, Trump continues to dominate headlines, but ...
20 Jan 2025: Trump 2.0 swings into action
17 Jan 2025: Brace for Monday, as a new era begins
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