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Commodities: Foundation grows for the next bull run
Commodities
Ole Hansen
Head of Commodity Strategy
After a robust first half, what's next for H2?
Key points in this update:
- The Bloomberg Commodity Total Return Index rose 5.5% in the first half, with the bulk of gains coming from just four contracts: gold, silver, copper, and live cattle. Note, platinum which surged almost 50% sits outside the BCOM index.
- In our recently published Q3 macro outlook, we called for less chaos and, ideally, a touch more clarity in the months ahead, with focus on the economic tariff fallout, the US dollar, and geopolitical developments.
- The ongoing forces of deglobalisation, decarbonisation, defence spending, de-dollarisation, demographics, urbanisation, and climate change continue to lay the groundwork for a potential commodity bull market.
- With most of the mentioned “Ds” being resource-intensive, we remain broadly constructive in the second half on precious and industrial metals, as well as natural gas, while crude oil may face headwinds amid rising output and economic growth concerns.
The commodity sector closed the first half of 2025 on firmer ground, with the Bloomberg Commodity Total Return Index rising 5.5%. This gain follows a volatile stretch that saw the worst quarter in two years (-2.7% in Q2) being more than offset by the best in four years (+8.9% in Q1).
At its core, commodity pricing hinges on the balance between supply and demand—both actual and perceived. Yet within that framework, several interconnected factors shape market direction: speculative flows that can amplify trends, interest rates that influence the cost of carry for non-yielding assets, and the inverse correlation between commodities and the dollar, a major driver in the first half as the Greenback lost around 9% against its major peers. Liquidity and sentiment also play key roles, with thin markets or abrupt sentiment shifts often sparking outsized price moves—regardless of underlying fundamentals. Finally geopolitical developments from wars to sanctions and trade disputes may create periods of supply risk premiums.
In H1, the bulk of the BCOMTR index’s gains came from just four contracts: gold (+24.4%), silver (+22.9%), copper (+24.9%), and live cattle (+18.1%). At the annual rebalancing of the index in early January, these markets represented 27.8% of the index, and their strong performance has pushed that share close to one-third, underscoring their outsized influence on index returns heading into the second half.
Interestingly, platinum, which surged by 48%, thereby topping the performance table by a safe distance, sits outside the index. While eligible for index inclusion, it has failed in recent years to meet the minimum thresholds, as its Commodity Index Percentage (CIP)—a blend of liquidity and production metrics—relative to gold and silver has left its inclusion unlikely for now.
At the other end of the spectrum, the grain sector dragged on performance, led by corn and wheat, weighed down by ample global supplies and signs of another bumper harvest across the northern hemisphere, following a strong southern season led by South America. Soybeans held up amid strong demand for soybean oil towards biofuels, a situation that together with a possible trade agreement with China bodes well for demand into the second half.
Cocoa and coffee ease after recent surge
Cocoa and coffee, two of the recent highflyers, suffered end-of-quarter setbacks amid improved growing conditions in Brazil for Arabica beans and, in the case of cocoa, due to weaker demand driven by elevated prices. While the outlook for cocoa has improved, partly driven by improved production forecasts, uncertainty persists owing to structural challenges and financing constraints in the two largest producers—Ivory Coast and Ghana. Coffee consumption, by contrast, has remained resilient despite higher prices, with the beverage still viewed as an affordable luxury. However, if prices stay elevated, we may eventually see a shift from out-of-home consumption of premium Arabica to lower-grade Robusta consumed at home.
Ample crude supply caps upside potential in H2
The energy sector ended the first half near flat following a volatile June. Tensions in the Middle East triggered a sharp rally, which quickly reversed after a U.S.-brokered ceasefire between Israel and Iran eased fears of supply disruptions through the Strait of Hormuz—arguably the world’s most strategically important oil transit chokepoint. Brent and WTI both fell around 4% during the period, as focus returned to the potential drag on global growth from Trump’s tariffs and the risk of an oversupplied market heading into autumn. OPEC8+ continues to ramp up production in an effort to punish overproducing quota cheaters, and to reclaim market share from higher-cost producers which may eventually have to dial down production amid lower price expectations.
The latest Energy Survey from the Dallas Fed highlighted the risks to US production from falling prices. Asked how they would respond to a WTI price at USD 60 per barrel over the next 12 months, 85 exploration and production firms 60% answered it would mean a small reduction, and 10% a significant reduction. Should the price stay at USD 50 over the next 12 months, that combined figure jumps to near 90%, highlighting a potential floor in global oil prices below which supply will suffer and the market will balance.
Natural gas, an increasingly important energy source in the global transition and rapidly growing power demand, managed a modest 2% gain during the first half. While robust production growth and mild weather curbed near-term consumption, the long-term outlook remains constructive. Expectations for rising demand—driven by electrification, data center expansion, and its role as a flexible backup to intermittent renewables—continue to support the market narrative, even as short-term fundamentals remain soft.
From a commodity perspective, we see opportunity amid these structural shifts. The ongoing forces of deglobalisation, decarbonisation, defence spending, de-dollarisation, demographics, urbanisation, and climate change continue to lay the groundwork for a potential commodity bull market. Arguably, that cycle already began between 2020 and 2022, catalyzed by post-Covid stimulus and the war in Ukraine. Commodities can trade sideways for years when supply and demand are balanced—but when a macro theme takes hold, it can spark so-called super-cycles. The last major example was China’s rapid industrialisation, which from 2000 to 2008 drove the BCOMTR index up 250% as supply of many key commodities consistently lagged demand.
In our recently published Q3 Macro Outlook, we called for less chaos and, ideally, a touch more clarity in the months ahead. Whether that materializes will depend heavily on the outcome of ongoing tariff negotiations. Current tariff levels—averaging somewhere between 12% and 18%—continue to act as a drag on both U.S. and global growth. That said, we expect the dollar to remain under pressure, not least because a weaker greenback aligns with the preferences of the current U.S. administration.
As my colleague John J. Hardy noted in the outlook:
“Trump 2.0 policy is anti-globalist—what economist Russell Napier calls ‘national capitalism,’ and others might label ‘reverse mercantilism.’ The U.S. is attempting to unravel the global economic order it helped build post-WWII—an order that fueled global growth and kept prices low for U.S. consumers. A strong dollar was central to that system, as export-driven economies suppressed their currencies. In the process, U.S. manufacturing was hollowed out, leaving the nation exposed to supply chain shocks—a vulnerability now seen as a national security issue. Despite Trump’s transactional approach and protectionist stance, the U.S. dollar will remain dominant—but less so than before.”Seven forces shaping the next commodity cycle
From a commodity perspective, we see opportunity amid these structural shifts. The ongoing forces of deglobalisation, decarbonisation, defence spending, de-dollarisation, demographics, urbanisation, and climate change continue to lay the groundwork for a potential commodity bull market. Arguably, that cycle already began between 2020 and 2022, catalyzed by post-Covid stimulus and the war in Ukraine. Commodities can trade sideways for years when supply and demand are balanced—but when a macro theme takes hold, it can spark so-called super-cycles. The last major example was China’s rapid industrialisation, which from 2000 to 2008 drove the BCOMTR index up 250% as supply of many key commodities consistently lagged demand.
Looking ahead, with most of the mentioned “Ds” being resource-intensive, we remain broadly constructive on precious and industrial metals, as well as natural gas. Crude oil, however, may face medium-term headwinds as rising OPEC+ output and lower prices have yet to weigh on high-cost producers, while the broader economic implications of Trump-era trade and foreign policy become clearer.
Precious metals: More gains ahead following robust H1 performance
As mentioned, gold up until recently led the charge for months, with silver and platinum recently joining the rally amid a potent mix of rising fiscal debt concerns, tariff-driven supply shocks, a softening labour market, and continued US dollar weakness—developments that may eventually prompt a dovish, and potentially stronger-than-expected, policy shift by the Federal Reserve. Adding to this is the risk of higher inflation and central banks extending their gold-buying spree into a fourth consecutive year; the groundwork for a push toward USD 4,000 within the next twelve months is, in our opinion, within reach.
Silver’s recent break above USD 35 may signal higher prices ahead, also on a relative basis to gold where accelerated central bank demand for gold since 2022 has left silver trailing on a relative basis as seen through the gold-silver ratio trading closer to 95 than its five-year average near 80. A gold rally to USD 4,000 in the next twelve months coinciding with a XAUXAG move to 80 would send silver back to its 2011 record high at USD 50.
Copper supported by energy transition and short-term supply chain dislocations.
The current copper rally—driven by a tangible supply squeeze as inventories shift toward the U.S. ahead of expected tariff announcements—highlights how swiftly fundamentals can reassert themselves in a tight market. Yet beyond this near-term disruption, the global energy transition is laying the groundwork for sustained, structural demand growth.
With mining and refining capacity constrained by years of underinvestment, the risk is clear: supply will struggle to keep pace. The result? A higher baseline for prices and increased volatility. Copper is uniquely positioned at the intersection of short-term bullish momentum and long-term megatrends, steadily reinforcing its reputation as “the metal of the future.”
While China remains well ahead in electrifying its economy, the U.S. is rapidly awakening to the scale of future power needs—from AI-driven data centers and widespread EV adoption to industrial reshoring and soaring cooling demand in a warming climate. Meeting these challenges will require significant grid expansion—and with it, copper, the unrivaled conductor of electricity, the medium- to long-term demand and price outlook remain supportive.
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