Commodity Outlook: Commodities rally despite global uncertainty

Commodity Outlook: Commodities rally despite global uncertainty

Quarterly Outlook
Ole Hansen

Head of Commodity Strategy

Key points

  • Gold may hit USD 3300, and silver USD 44, supported by central bank buying and economic and geopolitical uncertainty.

  • Tariffs and energy transition: Two key short- and long-term drivers of copper demand.

  • Brent expected to remain stuck in USD 65-85 range with demand and supply both being challenged.

  • US natural gas to benefit from rising domestic demand and strong LNG export demand.

 


The commodities sector has, despite multiple demand concerns, seen a strong start to the year, with one of the leading commodities indices reaching a two-year high, potentially signaling a breakout of the horizontal range that emerged following the 2020 to 2022 surge and subsequent correction. Overall, the Bloomberg Commodity Total Return Index (BCOMTR) has gained 8.3% so far this year, already eclipsing the 5.4% gain seen last year, with all sectors except grains showing gains, and, just like last year, led by precious metals and softs. The BCOMTR index, which is tracked by numerous exchange-traded funds, trades a basket of 24 major commodity futures split close to evenly between energy, metals, and agriculture.

In our Q1 outlook, we highlighted the risk of 2025 turning into a year where multiple developments and uncertainties could create a challenging trading and investment environment. That is most certainly what we have seen so far, with stock markets around the world, especially in the US, suffering setbacks amid worries about the outlook for growth and inflation caused by President Trump’s policies and actions, not least the use of tariffs as a weapon to force companies to relocate their production back to the USA. 

In addition, the breakup in relations between nations that helped set the international agenda for the past 80 years has caused a great deal of uncertainty as well. However, overalland despite the short-term risks to growth and consequently commodities demandwe view many of these developments as long-term supportive for some of the mega-trends we believe will underpin commodities in the coming years.

Mega-trends to drive long-term gains

In our opinion, the long-term trend for key commodities remains upward, driven by several major themes:

  • Deglobalisation: The US-China rivalry is reshaping supply chains, prioritising security over cost, and increasing demand for critical resources.

  • Defence: Rising geopolitical tensions are fuelling record military spending and stockpiling of key materials.

  • Decarbonisation and power demand: Investments in renewables, EVs, AI, and data centers are driving demand for metals and energy.

  • De-dollarisation: A shift from US dollar reliance is boosting gold purchases as a financial hedge.

  • Debt and fiscal risks: High global debt and deficits are increasing demand for hard assets like gold and silver.

  • Demographics & urbanisation: Ageing Western populations and growing emerging economies are driving resource demand.

  • Climate change: Higher power needs for cooling, food security concerns, and protectionism

 

Crude oil: "having your cake and eating it too"


Our 2025 forecast for Brent crude to trade within a USD 65-85 per barrel range remains unchanged, and following an early January rally briefly took prices above USD 80 per barrel, prices reversed lower, reaching a four-year low near USD 68 before stabilising. Prices have been weighed down by fears that Trump’s aggressive trade policies may trigger a global trade war that would negatively impact global growth and demand. In addition, traders have also been spooked by a plan by OPEC+ to gradually start reviving production from April. However, while the monthly increases are relatively small, there is a real threat that production from Iran and Venezuela may suffer as the US ramps up sanctions.

In the past four years, Iran and Venezuela’s production has risen by 1.6 million barrels per day, lifting their share of OPEC’s total production from 10.6% to 15.7%. In the same time period, the three Middle East GCC members of OPEC, led by Saudi Arabia, have voluntarily reduced their production by 1.6 million barrels per day. In the coming months, we see no major change in OPEC’s overall output, but instead a rotation of market shares.

Trump’s “Drill, baby, drill” stance and the administration's aim for a USD 50 oil price to cut inflation have also received some negative price attention. However, achieving lower prices much below current levels would hurt high-cost producers, many in the US, slowing and reversing production well before prices get anywhere near USD 50 per barrel. In other words, a lower oil price and rising US production cannot be achieved at the same time; hence our view that Brent towards USD 65 and WTI towards USD 60 offer good value.

US natural gas prices have risen strongly in recent months, supported by strong winter demand and rising LNG exports, and while the rally may have been somewhat premature, we believe the direction is correct and that we, in the coming years, will be moving towards a higher price range than the near USD 3 per MMBtu average seen during the past decade. The primary reason being an expected rapid increase in power consumption and record LNG exports during a period where producers may struggle to keep up.

Tariffs and energy transition: two key drivers of copper demand


In our Q1 outlook, we reiterated our long-held bullish outlook for transition metals such as aluminium and especially copper, while also saying that investors in the short term had to be patient while the impact on demand of Trump’s tariffs and countermeasures was being evaluated. However, the risk of a 25% tariff being applied on US imports of copper has seen prices in New York surge through our Q1 target at USD 4.7, with traders trying to price in the eventual level of tariffs. 

At the time of writing, HG copper futures, traded in New York, trade at a 12% premium to the global benchmark price in London, and it could rise to 25% if that is the tariff eventually being implemented following an ongoing investigation, or fall sharply if no tariff is being introduced. However, given expectations that such an investigation will take time to complete, we are seeing several price-supportive developments that underpin prices in the short term before a more long-term structural support emerges, driven by the energy transition—one of our commodity-supportive mega-trends.

So while the latest price spike isn’t due to consumer demand but rather major stockpile shifts to the US, it will nevertheless help tighten the global market ahead of schedule with a major bulk of visible copper stocks at risk of ending up being left stranded in the US, a country that accounts for less than 10% of global copper consumption. However, with HG copper futures already trading up 25% year to date with London trailing at around 13%, we see bigger upside risks to London prices. Overall, these developments make it very difficult to project a near-term price target, as it will ultimately depend on the level of tariff, if any, the US government eventually decides upon.

Gold may head towards USD 3,300 with silver enjoying dual tailwinds

We raise our 2025 peak gold price to USD 3,300, while silver, with a relatively modest move lower in the gold-silver ratio to 75, may reach USD 44 per ounce during the same time frame, not least supported by the mentioned strength in transition metals, a group that silver also belongs to. The gold rally that began in 2022 and which gathered momentum last year continues to be fuelled by an increasingly uncertain geopolitical landscape, where global tensions and economic shifts have led investors to seek safer assets, a development that shows no signs of fading anytime soon.

The combination of central banks buying gold aggressively to diversify away from the USD and USD-based assets such as bonds, a well as concerns about mounting global debt, particularly in the United States, have prompted investors to hedge against economic instability by turning to precious metals. This focus will remain in the coming months, with the potential for additional support from tariffs-led market turmoil driving lower growth while inflation may reaccelerate.

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