- Geoeconomic risks are unlikely to abate, helping gold.
- Food commodities like soybean and wheat may see supply-demand dynamic tighten.
- Copper is seeing a structural bottoming out owing to resilient industrial demand.
- Oil could see upside if US ratchets up sanction on some exporters.
- USD has entered a soft patch; in response commodity traders may mark up dollar prices.
Commentary: Signal from commodity markets
Since the panic-induced aftermath of Russia’s invasion of Ukraine in 2022, commodities have had a few lacklustre years. Factors such as demand slowdown in China, along with supply chains and stocks proving to be resilient against geopolitical risks, have kept most commodity prices subdued. Apart from gold, commodity prices, from industrial metals to energy, food to animal feed, entered 2025 on a declining trend. We now see a cyclical bottom.
Gold: Despite real interest rates being high, their typically bearish association with zero-yielding gold has broken down in recent years. Gold has been hitting record highs repeatedly, with investors ranging from central banks to retail individuals expressing their discomfort with brewing geoeconomic risks by staying long gold. With the US Federal Reserve resuming rate cuts, this dynamic will find additional support, in our view.
Soybean: The escalation in trade war this year has caused China to impose retaliatory tariff on agriculture imports from the US. Additionally, Chinese importers have been reticent to buy US soybeans. These developments have helped exports of Argentina and Brazil to soar, while US farmers sit on ever rising soybean stocks. Given this distortion in global supply, soybean prices have moved up, even as supplies swell in the US. A China-US trade deal may ease some of these issues, but we think China’s desire to keep buying most of its soybean needs from Latin America makes good risk management sense, and is likely to remain in place.
Copper: Copper price, a key barometer of global industrial demand, is now at a 15-month high. We see three key drivers behind this: (i) The US is tracking 3% growth, (ii) AI-related investment in data centres and energy is surging worldwide, and (iii) China’s industrial production is growing by 5-7%yoy, despite some slowdown concerns. These trends are likely to persist.
Wheat: Since the panic of 2022, when Ukraine’s ability to export commodities through the Black Sea was under threat, wheat has been on a general downtrend, reflecting a remarkably resilient supply chain and ample production globally. But storage data show a sharp decline in stockpiles over the past year, suggesting the soft patch in wheat prices may have run its course, and some upside is around the corner.
Oil: We have been structurally neutral or bearish oil for years, recognising the renewables revolution, decline in energy intensity in various industrial processes, and the major positive supply shock emanating from US Shale producers. But geopolitical risks are brewing, leading to some short-term upside risks, in our view. The US continues to impose escalating restrictions on oil supply from Iran, Russia, and Venezuela. Furthermore, oil refining could face risks if the various hotspots in the middle east flare up.
USD: The traditional inverse relationship between USD and commodities broke down post-pandemic, with USD and a number of commodity prices rising in tandem in 2021-22. US turning into a net oil exporter may have had a role to play in this shift in dynamic.
But now that the USD is weakening, the old relationship may well return, especially for non-oil commodities. With the US authorities keen to push through lower interest rates, and perhaps even likely to pursue policies to force long-term rates to be capped, the USD is quite likely to face to sustained downside pressure. Against this backdrop, there would be a tendency for commodity prices to be marked higher. Global inflation dynamic has benefitted from the commodity soft patch for several years. The end of that respite may be around the corner.
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