Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Commodities take a breather after action-packed November
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Commodities traded steadily in November, with strong gains in coffee, cocoa and natural gas being partly offset by weakness across precious and industrial metals as well as grains
- Cocoa extended its rally amid ongoing production concerns in West Africa, while Arabica coffee stole the spotlight, surging to a 47-year high due to fears about Brazil's 2025 crop
- Precious metals, led by silver, experienced declines amid profit-taking spurred by a stronger dollar and robust US economic data, which pointed to a potential slowdown in interest rate cuts
- Crude oil had an uneventful month ahead of a delayed OPEC+ meeting, with WTI and Brent both trading within the narrowest ranges since May
From an asset class perspective, commodities traded steadily in November, a month marked by significant developments on both the economic and political fronts. In the US, the elections delivered a decisive victory to Donald Trump, granting him the opportunity to shape the world’s largest economy according to his vision over the next four years. His agenda has raised concerns about trade wars, with tariffs potentially targeting not only imports from China but also goods from key trading partners, particularly Canada and Mexico. Furthermore, his proposed policies on mass deportations of illegal immigrants, tax cuts, and infrastructure spending could significantly strain the Treasury, necessitating funding through an increased fiscal debt burden.
Elsewhere, geopolitical tensions and adverse weather conditions drew significant attention. Tensions between Russia and the West escalated following Russia’s lowered threshold for nuclear weapon use, raising geopolitical stakes beyond those witnessed during the prolonged conflict between Israel and Iran-backed militants. Meanwhile, the US dollar gained strength for a second consecutive month, with the Bloomberg Dollar Index poised for its strongest monthly close in over two years.
The Invesco Bloomberg Commodity UCITS ETF, one of several exchange-traded funds that tracks the performance of the Bloomberg Commodity Total Return index, has traded rangebound for the past two years and is currently up 4.5% on the year.
Commodity index overview
The Bloomberg Commodity Index, which tracks the performance of 24 major futures markets, recorded a modest monthly gain, led by strong performances in the softs and energy sectors. Notably, the index excludes standout performers such as cocoa and EU natural gas. Precious metals, led by silver, saw their first monthly decline since June, while mixed results across industrial metals and grains weighed on overall performance. Key laggards included CBOT wheat and HG copper. Overall, developments that underscores a complex and volatile market environment, with weather-driven energy gains, geopolitical tensions, and economic uncertainties shaping the landscape for commodities.
Natural gas, cocoa and coffee soar
Colder-than-expected weather in the US and Europe drove power demand higher, pushing natural gas prices in both regions to fresh one-year highs. In Europe, prices were further supported by concerns over a potential halt of gas flows from Russia via Ukraine after 31 December. Among soft commodities, cocoa extended its rally—already up 240% this year—amid ongoing production concerns in West Africa. However, it was Arabica coffee, prized for its smooth taste and used in espressos and high-quality products, that stole the spotlight, surging over 33% to a 47-year high due to fears about Brazil's 2025 crop. For additional reading on coffee: Coffee, one of the world’s most traded commodities, surges to a 47-year high
Precious metals see profit-taking
Precious metals, led by silver, experienced declines amid profit-taking spurred by a stronger dollar and robust US economic data, which pointed to a potential slowdown in interest rate cuts. After delivering a stellar 30% rally this year, both gold and silver have faced investor reassessments, with some choosing to lock in gains ahead of year-end. Despite these short-term declines, the bullish outlook for gold—and by extension, silver—remains intact. Persistent global uncertainties continue to drive demand for gold as a safe-haven asset. Meanwhile, unfunded spending plans under the Trump administration, inflation risks from tariffs, and central bank efforts to de-dollarise reserves are expected to provide longer-term support. Please find additional updates in our latest article and podcast: Choppy gold market turns to Santa for December support and Podcast: Will gold enjoy a Santa rally for the eight year in a row?
Industrial metals mixed
Industrial metals traded mixed but trended lower overall for the month, reacting negatively to proposed tariffs on imports, particularly from China—a move that could disrupt global trade and reduce demand for metals like copper and aluminum. Copper, which dropped over 5% during the month, faced additional pressure from concerns about a potential slowdown in the energy transition. This followed former President Trump’s statement that he would "rescind all unspent funds" under the Inflation Reduction Act (IRA), the Biden administration's flagship climate legislation.
Despite these challenges, the global shift toward electrification continues, not least in China where the EV and hybrid boom increasingly points to sooner than expected slowdown in demand for traditional fuels. In the U.S., the surge in power demand from data centers and AI technologies is reshaping the energy landscape, and after two decades of flat electricity demand, the U.S. Energy Information Administration (EIA) now projects consistent annual increases through 2050, driven largely by these energy-intensive industries. This growth is expected to boost not only natural gas demand but also the need for industrial metals like copper, which is critical for conducting the increased electrical load.
Crude remains stuck near range lows
Crude oil had an uneventful month, with WTI and Brent both trading within the narrowest ranges since May. This was supported earlier in the month by rising refinery margins for distillate products amid an incoming cold snap, which drove the surge in US natural gas prices to a one-year high; heightened Russia–Ukraine tensions; and doubts about OPEC+ unwinding voluntary production cuts in 2025 due to market oversupply. However, the 2025 outlook remains unsupportive for crude prices, with lacklustre growth not only in China but also in Europe, where economic data continues to weaken.
The OPEC+ group meets on 5 December to discuss whether to proceed with reviving supplies. Following two postponements, the group has to consider the risk of further price weakness amid the release of currently unwanted barrels, not least because expectations for robust production from non-OPEC+ producers next year could lead to a crude surplus.
Still, some upside risks remain, including a potential Trump administration adding fresh sanctions on Iran and Venezuela, as well as geopolitical risks intensified by the Russia–Ukraine war and the Middle East conflict. A proposal by Treasury Secretary nominee Scott Bessent to increase US production by 3 million barrels of oil equivalent through 2028 will most likely be driven by increased production of natural gas and natural gas liquids. With WTI currently trading below USD 70, the incentive for further production increases remains constrained. As a result, we view natural gas as a more significant opportunity, with strong global demand making inexpensive US natural gas highly attractive worldwide.
Recent commodity articles:
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
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
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