Quarterly Outlook
Macro outlook: Trump 2.0: Can the US have its cake and eat it, too?
John J. Hardy
Chief Macro Strategist
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Commodities weekly: Strong January led by precious metals
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Commodity markets saw broad gains in January, led by precious metals, followed by the agricultural sector, where gains were led by coffee, corn, and cattle.
- President Trump’s economic plans for tariffs sent ripples through not only the crude oil market but more aggressively across metals traded on the COMEX futures exchange in New York.
- The DeepSeek disruption extended to companies that design, manufacture, and deliver electric power systems, while copper—a critical metal for electrification—was left unscathed.
- Crude oil surrendered most of January's early gains, while gold scaled new heights as traders sought shelter amid increased uncertainty.
Commodity markets saw strong and broad gains in January, led by precious metals, where silver and gold both extended their strong rally from last year, while the agricultural sector showed broad strength, led by coffee, corn, and cattle. The energy sector, meanwhile, saw a very strong rally at the beginning of the month slowly deflate as natural gas tumbled following a period of frigid cold weather, while crude and products faced many moving parts—from Russia sanctions to Trump tariffs and the OPEC+ production decision.
Overall, it was a very busy month, with plenty of headline risks creating a challenging trading environment, most of all led by comments and statements from Washington, where Trump’s first days in office signalled a confrontational policy both domestically and internationally.
The Bloomberg Commodity Total Return Index (BCOMTR), which tracks a basket of 24 major commodities—split almost evenly between energy, metals, and agriculture—returned around 4.5% in January, at some point even eclipsing last year’s increase of 5.4%, with all sectors notching up gains, led by precious metals and softs. On an individual level, the biggest gainers were Arabica coffee, platinum, silver, copper, and gold.
The current momentum across most sectors has supported a buildup in hedge funds’ net long exposure across 27 major futures contracts, reaching a 31-month high at 1.62 million contracts, valued at approximately USD 160 billion.
President Trump’s economic plans for tariffs and immigration, and how they might impact growth and inflation, were a key focus, and one that sent ripples through not only the crude oil market but more aggressively across those metals traded on the COMEX futures exchange in New York, as traders worried tariffs—if introduced—on imported metals would uproot normal trading dynamics. The futures prices of HG copper, gold, silver, and platinum all rose to levels relative to spot prices in London that are not justified by the typical costs associated with funding and storage.
The New York futures market, with its deep liquidity and round-the-clock trading, is frequently used by traders and banks to hedge physical market commitments through short selling. However, Trump’s pledges to impose tariffs on imported goods have raised concerns. Specifically, these tariffs could increase the cost of holding short positions for future delivery. If the required metals to cover a short futures position need to be imported, the additional tariff costs could make short selling significantly more expensive.
In precious metals, the squeeze in silver was most profound, given the importance of imports from Mexico, while in gold it was less pronounced for two reasons: a lot of gold has already been transferred to COMEX-monitored vaults, with total inventories rising 73% since early December, and given gold’s monetary and investment asset status, it is likely to be exempt.
While the markets kept dancing to the rhythm of Trump’s tariff orchestra, a sudden attack from a DeepSeeking missile struck at the heart of the US AI industry, triggering a major correction across key technology and chip-making stocks. The Chinese AI startup introduced a cost-efficient AI model, DeepSeek-R1, which could rival leading US models like OpenAI’s at a fraction of the cost. This innovation led to a USD 1 trillion drop in US tech stock valuations, including a 17% plunge in Nvidia, as investors questioned the sustainability of current AI spending and infrastructure strategies.
The disruption extended to companies that design, manufacture, and deliver electric power systems, driven by speculation that the expected strong increase in power demand from data centres in the coming years might be overstated. The nuclear industry also took a hit, with the price of uranium U-308 slumping to a 15-month low, while an ETF that tracks a broad range of companies involved in uranium mining and the production of nuclear components slumped more than 12% before recovering.
Copper, a critical metal for electrification due to its exceptional electrical conductivity—second only to silver—was left unscathed by the sudden doubt about future power demand, potentially highlighting that the slump across power-generating companies was mostly due to a long-overdue correction across a sector that had witnessed very strong gains in the past year. Also supporting prices in New York were the mentioned concerns about short selling amid the risk of tariffs on copper produced outside the US, a focus that has seen the price of High Grade copper in New York trade at a 4.2% premium to prices in London.
The fact that the DeepSeek fallout only triggered a minor setback across industrial metals needed to support the electrification process supports our view that an increase in demand for power in the coming years will be strong enough to sustain and support current price levels of key metals such as copper and aluminium. Not least considering the increased challenges mining companies are facing amid ongoing underinvestment in long-cycle projects, making future supply chains more fragile.
The three C’s propel agriculture sector to best month since September
As mentioned and shown in the performance chart at top, the agricultural sector has also started the year on a firm footing, with the BCOMTR Agriculture Index showing a gain of 5%, with all three sub-sectors trading higher, led by the three C’s: coffee, cattle, and corn. Arabica coffee reached a fresh record high, extending a one-year rally to 92% due to rising concerns over supplies, especially from top-grower Brazil. Cattle futures traded in Chicago also hit record levels, driven by a cyclical shortage amid tight supply, recently made worse by extreme winter weather delaying the fattening process and import restrictions from Mexico due to disease controls.
Corn, meanwhile, extended its five-month rally to a 15-month high near USD 5 a bushel—before retreating on profit-taking and US tariff fears—supported by tightening US and global supplies. The recent acceleration occurred after the US Department of Agriculture reduced US harvest estimates and the carryout, i.e., the amount of stock left in storage at the end of the current crop season. In addition, the Oceanic Niño Index points to an incoming La Niña, which normally brings persistent dryness to Argentina and southern Brazil, potentially worsening crop conditions, with expectations for Argentina’s corn and soybean crops already suffering a series of downgrades.
Crude oil surrenders most of January’s early gains on tariff-led demand worries
WTI and Brent began the month by extending an ongoing rally, with prices hitting six-month highs before reversing lower to end the month close to where they started. The initial rally was supported by increased demand for diesel and heating fuels in response to frigid cold weather in the US, a development that also supported a surge in natural gas to a two-year high at USD 4.37 a therm. In addition, increased sanctions against Russia’s energy industry made the market question whether 2025 would, in fact, deliver an overhang of supply driven by robust non-OPEC+ production growth.
Prices began reversing lower after Trump declared a “national energy emergency” in order to unleash new oil and gas production across the nation, from the Gulf of Mexico to Alaska. However, considering that the energy sector is not state-controlled and is heading for its worst Q4 earnings decline in years, the appetite for “Drill, baby, drill” is likely to be limited. Not least considering the downside risk to prices, making new multi-year projects less viable and profitable.
In the short term, the market will be trying to gauge the impact on prices and demand from the risk of a global trade war, April’s expected OPEC+ production increase, and lower supply from sanctioned countries. Brent and WTI have, apart from a few geopolitical-led peaks and China growth risk slumps, been trading sideways for the past two years, not least due to active production management from OPEC+ producers. We maintain our 2025 price focus on a range-bound market that, for now, should see prices struggle to break outside a USD 65 to USD 85 range.
Gold and silver supported by Trump 2.0 uncertainty, and New York squeeze
Precious metals have benefited from the increased uncertainty caused by a wave of Trump announcements following his inauguration, including tariffs, with investors also evaluating their inflationary impact and effects on monetary policies. The latest run-up in prices saw spot gold hit a fresh record at USD 2,800, while futures prices in New York reached USD 2,860 amid the mentioned tariff-led squeeze.
In addition, the dollar traded softer in January, thereby adding some tailwind to both metals. In our recently published Q1 2025 outlook, we reiterated our long-held bullish view on both gold and silver. With Trump 2.0 upon us, this development shows no signs of fading, given the potential risks of tariffs causing inflation to move higher while raising concerns about the US fiscal deficit.
Silver, supported by the New York squeeze and fresh sellers of the gold-to-silver ratio above 91, helped drive prices higher, with the futures contract retracing 0.618 of the losses seen during the October to December correction. If gold reaches our conservative forecast of USD 2,900 per ounce, silver might trade above USD 38 per ounce.
Recent commodity articles:
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:
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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