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 rally pauses ahead of Trump’s inauguration
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- A broad commodities rally continued this week, before some profit-taking emerged ahead of Monday's inauguration speech.
- The Bloomberg Commodity Index reached a 25-month high with all three sectors showing gains
- In our recently published Q1-2025 outlook, we paint a broadly bullish outlook for commodities
- Much focus is on energy, given strong winter demand at a time when supply from Russia is facing challenges amid increased sanctions.
Halfway through January, the broad commodities rally continues, attracting demand from speculators and traders alike, who are worried about missing the current momentum train. The Bloomberg Commodity Total Return Index, which tracks a basket of 24 major commodities—split almost evenly between energy, metals, and agriculture—reached a 25-month high this week, with all three sectors showing gains, before some profit taking started to emerge ahead of Monday’s key risk event, the inauguration speech by President Trump. Before, the gain in the index had already eclipsed last year, raising questions about whether it can be sustained in the coming weeks, especially given the level of uncertainty regarding market reactions to announcements from the incoming Trump administration.
Earlier this week me and my colleagues in Saxo’s strategy team released our first outlook of the year in which we focused on the potential impact of a Trump 2.0, while taking a more detailed look at forex, equities, commodities, and China.
Regarding commodities, I wrote:
“Heading into 2025, there is little doubt we face a year where multiple developments and uncertainties may create a challenging trading and investment environment for commodities. Will the Trump team open with a tariff broadside that triggers countermeasures and an immediate all-out trade war, or will Trump open with modest tariffs and an invitation for deal-making? Besides tariffs, the market will await China’s response, which could lead to stronger domestic demand for raw materials, most likely supporting those benefiting from the electrification process over those used in construction. Furthermore, the dollar and its negative correlation to commodities, the direction of US short-term rates, and yields will also be in focus.”
Our main commodities forecasts—which are generally geared towards higher prices—are for crude oil to stay mostly rangebound within a USD 65–85 per barrel range, with the short-term risk being skewed to the upside; gold to reach USD 2,900 per ounce; silver USD 38 per ounce; and copper USD 4.80 per pound. While the strong start to January has already brought us close to some of these targets, it is still too early to make any revisions, given the elevated level of near-term uncertainty. Also, we may have witnessed a great deal of commodity hoarding ahead of potential tariffs, highlighting a risk that the demand seen has not been driven by real end user demand.
In addition, managed money accounts, from hedge funds to CTAs, have started the year by lifting their net long exposure across key commodities to a 17-month high. These types of speculators tend to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a trough in the market. With this in mind, we need to see the recent strong gains maintained in order to avoid another round of long liquidation.
Returning to the current situation, the broad rally has been led by strong gains across the energy sector, with natural gas, diesel, and crude oil driving the trend, followed by metals, both precious and industrial. Within the agricultural sector, both grains and livestock subsectors have risen, thereby more than offsetting losses in softs, led by a decline in sugar to a five-month low amid an outlook for ample supply from top growers and exporters—Brazil, India, and Thailand.
In addition to improvements in the near-term fundamental outlook, the commodities sector has also seen an inflow of money from macroeconomic-focused hedge funds seeking a hedge in tangible assets from the risk of sticky inflation. Although these concerns were somewhat lowered after US core inflation softened a bit in December, we have nevertheless, since mid-December, seen a reasonably high positive correlation between rising forward inflation expectations and rising crude oil prices.
Crude oil, a market that has been singled out to struggle in 2025 amid high levels of spare capacity held by Gulf producers and non-OPEC+ production growth exceeding global demand growth, has jumped out of the starting block, supported by momentum buying amid fresh US sanctions against Russia. In the short term, these sanctions look set to disrupt Russia’s supply and distribution chains, leading to a tightening market. In addition, cold weather across the northern hemisphere has lifted demand for natural gas, diesel, and heating fuels, while US stockpiles of crude, following an eight-week decline, have hit an April 2022 low.
This week, the WTI crude oil futures broke the downtrend that had been in place since late 2023. However, after jumping more than $10 in less than a month, concerns are emerging that prices may have overshot current fundamentals.
Elsewhere, gold and silver prices have also managed to notch up gains despite continued headwinds from a stronger dollar, with gains being led by non-interest- and dollar-sensitive investors, but also short covering in the New York futures market on fears Trump tariffs may disrupt and potentially uproot normal trading dynamics. This week, gold broke a recent established downtrend, only to encounter resistance around USD 2725, a twice-rejected area since November. Traders and investors will be watching next weeks inauguration speech from President Trump in order to gauge a better understanding of the trajectory of tariffs and the US fiscal debt situation, and whether his announcements changes the markets view on the dollar, bond yields and the direction of short-term rates.
Copper shorts in New York have also been squeezed, thereby adding support to a rally that has seen the key transformation metal rise by more than 11% this month. Traders are also looking for an improved demand outlook in China after an end-of-year stimulus blitz and export boom—some of it probably related to frontloading orders ahead of tariffs—helped turbocharge growth in the final quarter to the strongest level in six quarters.
Having rallied almost non-stop since a 31 December low at $4 per pound, the HG futures contract has now found some resistance ahead of USD 4.5 per pound, potentially signaling consolidation above support in the 4.33-35 area.
Recent commodity articles:
17 Jan 2025: Podcast: Brace for Monday, as a new era begins
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
29 Nov 2024: Commodities take a breather after action-packed November
28 Nov 2024: Coffee surges to a 47-year high
28 Nov 2024: Choppy gold market turns to Santa for December support
27 Nov 2024: Podcast: Will gold enjoy a Santa rally for the eight year in a row?
25 Nov 2024: COT Report: USD long jumps; Mixed week in commodities
22 Nov 2024: Commodity weekly: Strongest performance since April
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
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