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Commodities weekly: Broad weakness as tariff fatigue sets in
Commodities
Ole Hansen
Head of Commodity Strategy
Key points in this update:
- Tariff fatigue emerged this week as global financial markets scrambled to keep up with the barrage of executive orders and off the cuff remarks from President Trump
- The market stress caused by uncertainty on so many different levels helped drive volatility higher across most asset classes, including commodities, forcing a broad retreat
- A leading commodities index saw its first weekly decline in five, with a 2.9% loss on the week reducing the year-to-date gain to 5.7%
- The energy sector being weighed down by demand threats and increased supply from Iraq, while gold’s overdue correction gathered some further momentum
"There are decades where nothing happens, and there are weeks where decades happen" is a quote I will repeat again this week, as global financial markets scramble to keep up with the barrage of executive orders and comments from the White House, some of which seem like they are made up without careful prior consideration. Especially, Trump's favourite tariff weapon was once again rolled out in force this past week, with Europe, Mexico, Canada, and not least China being the focus. These latest pronouncements on trade tariffs drained investor appetite across the world, not least in the US, where the S&P 500 erased its gains for 2025, while the tech-heavy Nasdaq saw all of its post-election gains wiped out.
The market stress caused by uncertainty on so many different levels helped drive volatility higher across most asset classes, including commodities, thereby triggering a broad retreat from leveraged funds that are forced to adjust (reduce) exposure when volatility jumps. This helps to explain why the only safe havens, apart from US government bonds, that worked this past week was the US dollar, which strengthened thereby inadvertently adding some additional downward pressure on key commodities, while gold and other investment metals suffered a setback, partly explained by the need for consolidation after gold posted a nine-week run of gains.
Overall, the Bloomberg Commodity Total Return Index, which tracks a basket of 24 major futures contracts split almost evenly between energy, metals, and agriculture, saw its first weekly decline in five, with a 2.9% loss on the week reducing the year-to-date gain to 5.7%, still a notably stronger performance than most other asset classes, especially the stock market. All sectors traded lower, led by the agricultural sector where wheat, sugar, and corn led the declines. Silver, gold’s temperamental and more volatile sibling, slumped 4.9% while gold’s orderly decline at the time of writing had taken it lower by 2.9% on the week.
Energy sector focusing on demand threats and increased supply from Iraq
The energy sector also suffered a broad decline on concerns a global trade war may lead to lower growth and with that demand for fuel products, at a time when OPEC+ is still undecided about crude oil production levels for April and beyond, while ongoing peace talks to end the war in Ukraine also weighed on sentiment. The focus on these developments combined with news Iraq may soon resume oil exports from the semi-autonomous Kurdistan region through the Iraq-Turkey pipeline saw WTI and Brent head for a monthly loss after giving back all of the early January gains. Meanwhile, natural gas, the best-performing commodity so far this year in response to very strong winter demand and record LNG exports, suffered a minor setback that still left a year-to-date gain of 26.6%.
Brent crude oil’s slump below USD 74.15 support has raised the risk of an extension towards an area of support around USD 71 from where prices bounced on several occasions during Q4-2024.
Industrial metals (copper)
The industrial metal sector, meanwhile, held up reasonably well, partly due to copper prices on the COMEX futures exchange receiving a relative boost from Trump's threat to impose tariffs on copper imports, potentially causing a dislocation leading to relatively higher prices in New York not being reflected elsewhere amid a current rise in warehouse stocks monitored by the two exchanges in London and Shanghai.
This week, President Trump signed an executive order instructing Commerce Secretary Howard Lutnick to investigate whether foreign copper production and imports threaten the United States' economic and national security. In 2024, the U.S. consumed approximately USD 17 billion worth of copper, importing about 45% of this amount, primarily from Chile. Copper is used by industries such as automotive, electronics, telecommunications, and construction for plumbing and roofing. The key question is whether Trump can use tariffs to boost U.S. domestic production and refining. Given the lengthy process to increase production, this decision, if implemented, could raise U.S. prices and diminish the appeal of HG copper futures as a hedging and trading instrument.
Gold's overdue correction drives silver lower
Gold’s overdue correction gathered some further momentum ahead of the weekend as volatility spikes across markets force leveraged funds to reduce across-the-board exposure, not least across commodities that in recent weeks and months had enjoyed a great deal of interest from hedge funds. The November correction saw it drop USD 253 before rallying USD 419, and so far the setback is less than USD 100. Looking for support at USD 2,813 ahead of the key at USD 2,790 level, the October peak and previous record high.
Where gold goes, silver follows, but often at a faster pace. The current correction has pushed spot silver prices lower towards the centre of the range that has prevailed since November. Some attention should be given to the 0.5 and 0.618 Fibonacci retracement levels at USD 31.08 and USD 30.54, with the latter also being the 200-day moving average. The gold-silver ratio (XAUXAG) trades near 92 ounces of silver to one ounce of gold, an area that has provided resistance on several occasions since early 2023, eventually leading to periods where silver outperformed.
Overall, we see this as a healthy correction before a fresh push towards USD 3,000 and beyond in gold and silver towards the high USD 30’s.
Mega trends providing long-term support
This past week, I visited Zurich and Paris, meeting with clients and journalists to present and discuss our current outlook for commodities. While expressing some concerns about the speed with which commodities have rallied at the start of the year, combined with the potential demand-damaging impacts of a trade war, we maintain our long-term and long-held bullish outlook, driven by several mega-trends that have and will continue to evolve in the coming years. Below is a slide from the presentation highlighting some of these, while more can be found in this recent update.
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Podcasts that include commodities focus:
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29 Jan 2025: The DeepSeek winners emerge
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20 Jan 2025: Trump 2.0 swings into action
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