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
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Commodity weekly: Some weakness seen ahead of critical week
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- The commodities sector is closing the week with losses, largely led by declines in the energy and industrial metals segments
- Biggest losses occurred across the energy sector, led by continued weakness in natural gas prices amid warmer weather
- Gold’s record-breaking rally paused with a mini-correction unfolding ahead of next week’s US elections
The commodities sector is closing the week with losses, largely led by declines in the energy and industrial metals segments. Investors and traders have adjusted positions in anticipation of the U.S. elections on November 5—a pivotal event that introduces considerable binary risks due to the high uncertainty surrounding the outcome. This pre-election repositioning underscores the intricate balance between market sentiment and potential economic impacts. The Bloomberg Commodity Total Return Index, preferred for its diversified exposure to energy, metals, and agriculture, remains up by roughly 5% year-to-date. Gains in precious metals, soft commodities, and industrial metals have offset declines in grains and energy, with the latter dragged down primarily by a steep 41% drop in natural gas.
Energy
The biggest losses occurred across the energy sector, led by continued weakness in natural gas prices amid warmer weather forecasts in the US and Europe, indicating sluggish demand for heating fuels. Crude oil fluctuated with the flow of news from the Middle East, where an initial slump followed Israel’s retaliatory attack on Iran. This was followed by renewed bids ahead of the weekend after Iran threatened further action, potentially via proxies that it backs in Iraq. Additionally, speculation about another delay in OPEC+ plans to restore curbed production, stronger-than-expected US economic data, and China’s stimulus efforts helped stabilise and support prices ahead of key support.
Hedge funds have for now adopted a sell into rallies strategi in crude oil, and combined with an already weak position in the fuel products, especially distillates, amid global demand worries and excess refinery capacity, the directional risk from a positioning perspective seems increasingly skewed to the upside on any supportive change in the technical or fundamental outlook.
Precious metals:
This sector experienced a small weekly decline after gold’s record-breaking rally paused with a mini-correction unfolding ahead of next week’s US elections—a major risk event that had recently driven prices higher despite rising headwinds from robust US economic data and increasing yields, which could reduce the pace and depth of future rate cuts. Depending on the election outcome, we see the risk of a USD 100+ correction next week, especially if the results prevent one party from gaining control of the White House and Congress—an event likely to heighten concerns over excessive government spending, potentially pushing the debt-to-GDP ratio higher while fuelling inflation fears.
Overall, however, we maintain a long-held bullish view on gold supported by concerns over fiscal instability, safe-haven demand, geopolitical tensions, de-dollarisation driving strong demand from central banks, Chinese investors turning to gold amid record-low savings rates, and recently, as mentioned, increased uncertainties surrounding the aftermath of the US presidential election. In addition, the US Federal Reserve is despite a less dovish tone following a number of strong economic data prints still expected to cut rates on November 7, potentially supporting additional demand for bullion-backed ETF’s.
Industrial metals
The BCOM Industrial Metal Index was heading for a fifth, albeit small, weekly decline, led by zinc and aluminium, following a late September rally fuelled by Chinese stimulus and US rate cut expectations that later dissipated on concerns the stimulus measures would insufficiently address China’s significant challenges, especially with the possibility of tariffs on Chinese exports under a potential Trump administration. Some support emerged after China’s manufacturing activity unexpectedly picked up in October, potentially offering sign of improved confidence. In addition to the US election, traders will focus on next week’s key gathering of China’s top legislative body and the upcoming Federal Reserve meeting.
HG Copper continues to find support near USD 4.30 per pound, with upcoming events potentially determining if this level will continue to attract buyers. Our bullish long-term view remains unchanged, supported by solid demand, especially towards the energy transition, potentially creating a supply shortfall as miners struggle to increase production amid rising input prices, declining ore grades, climate change, and increasing regulatory costs and government intervention. The overall uptrend from the 2020 pandemic low appears well-established and would require a weekly close below USD 4 to change that.
Recent commodity articles:
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
30 Sept 2024: COT: Fed and PBOC trigger largest weeklyl surge in commodities demand in a decade
27 Sept 2024: Commodity weekly: Industrial metals gain strength during a week of crude weakness
26 Sept 2024: Crude prices drop again as Saudi and Libya supply concerns grow
24 Sept 2024: Fed and PBOC add momentum to commodities market rebound
23 Sept 2024: COT: Dollar short reduced; Investment metals see strong demand ahead of FOMC
20 Sept 2024: Commodity weekly: Commodities boosted by bumper rate cut
20 Sept 2024 Video: Gold or silver, which metal will perform the best
17 Sept 2024: With gold reaching new heights, silver shows potential
16 Sept 2024: COT: Record short Brent and gas oil positions add upside risks to energy
11 Sept 2024: Crude slumps amid technical selling and recession fears
10 Sept 2024: US Election: will gold win in all scenarios
9 Sept 2024: COT: Crude long cut to 12-year low; Dollar short more than doubling
5 Sept 2024: Can gold overcome the 'September curse'?
4 Sept 2024: Wheat rises on European crop worries
3 Sept 2024: Chinese economic woes drag down crude oil and copper
2 Sept 2024: COT: Commodities see broad demand as the USD slumps to a net short
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