Commodities weekly: Election shock triggers broad selloff, with precious metals the exception

Oil tumbles as hopes for peace confront physical realities

Crude oil experienced its sharpest weekly decline in months, with Brent and WTI both losing close to 13%, as investors increasingly priced in the possibility of a negotiated settlement between Washington and Tehran. The prospect of an end to the conflict, combined with recovering Middle East crude flows, raised hopes that the extraordinary supply disruptions and elevated energy prices seen this year could gradually unwind.

Brent briefly approached its 200-day moving average near USD 93.55 before rebounding towards USD 100 ahead of the weekend, as traders reassessed the likelihood of a swift diplomatic breakthrough.

The recovery reflected growing recognition that the path towards a comprehensive agreement remains long and uncertain. Iran, whose oil exports have fallen close to zero, is demanding an end to the US naval blockade, sanctions relief and the release of frozen assets before agreeing to fully reopen the Strait of Hormuz. Meanwhile, renewed tanker incidents and persistent security concerns underline the risks still facing regional shipping.

Importantly, the physical oil market is showing signs of improvement, although the recovery remains uneven. Crude exports from the Gulf have recovered significantly from their wartime lows, helping ease pressure on crude availability and physical premiums. However, the situation for refined products remains considerably tighter.

Middle East refinery operations and product exports remain well below pre-war levels, leaving global diesel and jet fuel markets exposed to tightness and elevated prices. This explains why refined product prices and crack spreads have generally held up better than crude, despite the sharp decline in benchmark oil prices. The distinction matters because lower crude prices will not translate fully into lower transport and industrial fuel costs until refinery production and product trade flows recover.

The political dimension adds another layer of uncertainty. While Trump's weakened domestic position may increase incentives to pursue a diplomatic solution, foreign policy and military decisions remain largely within presidential control. A failed negotiation or renewed escalation could therefore quickly restore part of the geopolitical risk premium.

For now, the oil market is increasingly discounting a more peaceful future, while the physical market continues to reflect the considerable obstacles standing in the way of normalisation.

European natural gas prices have also fallen sharply, with benchmark TTF futures heading for their biggest weekly decline in more than a year, down around 16%, as hopes for a negotiated end to the Middle East conflict raise expectations of increased LNG flows ahead of the peak winter demand period. However, diplomatic progress remains limited, while the war has disrupted supplies equivalent to nearly one-fifth of global LNG trade that would normally transit the Strait of Hormuz. With Europe entering its highest seasonal demand period, a timely recovery in Middle East LNG exports will be crucial to easing supply concerns and preventing renewed price spikes.

Copper faces a double challenge from AI and tariff expectations

Copper suffered one of its sharpest weekly declines this year, falling more than 4% to its lowest level since July before rebounding as the political shakeup in Washington threatened two important pillars of the bullish outlook.

The first concerns artificial intelligence. The extraordinary expansion of data centres, electricity networks and associated infrastructure has become an increasingly important component of expected future copper demand. However, the Democrats' election victory has raised concerns that greater scrutiny of electricity costs, water consumption and the environmental impact of data centres could delay or restrict new projects.

These concerns contributed to the sharp technology sector selloff, with investors questioning whether the hundreds of billions of dollars being committed to AI infrastructure can continue growing at the same pace.

The second challenge concerns US trade policy. Expectations that Washington might eventually impose tariffs on refined copper have encouraged substantial inventory accumulation in the United States, distorting regional supply balances and supporting elevated premiums elsewhere. A reduced likelihood of tariffs could eventually release some of these inventories back into international markets, easing the tightness that has supported prices.

However, neither development has fundamentally changed the immediate supply picture. Copper miners continue to struggle with production targets, while Chile, the world's largest producer, recently reported exceptionally weak output. Meanwhile, elevated Chinese import premiums and tight nearby spreads continue to signal physical supply constraints.

The market therefore faces a potential conflict between weakening expectations for future demand and continued near-term supply tightness. This distinction is particularly important given copper's relative resilience during the recent correction across precious and industrial metals. Whether that resilience can continue will depend on the extent to which AI-related investment plans are delayed, alongside any change in US tariff policy and the availability of inventories currently concentrated in American warehouses.

Gold and silver recover as inflation and rate concerns ease

Precious metals emerged as the week's clear winners, with gold gaining 5%, silver 5.7%, and platinum 6.8%, reversing part of the heavy losses recorded during October.

The recovery was initially driven by aggressive short covering after gold's recent breakdown below USD 3,970 had attracted technical and momentum-driven sellers. The sharp decline in oil prices subsequently provided additional support by reducing near-term inflation concerns and expectations for further Federal Reserve tightening.

Lower Treasury yields and a softer dollar reinforced the rebound, while the Democrats' victory raised questions about the scope for further US fiscal expansion, potentially reducing some of the pressures that had previously supported bond yields. However, the recovery has not been without setbacks. Renewed weakness in technology stocks triggered broader risk aversion and profit-taking, while oil's rebound towards USD 100 removed some of the immediate disinflationary support.

For gold, the USD 3,970–75 area remains an important technical reference point, having shifted between support and resistance during recent trading. A sustained recovery above this area, confirmed by a move above USD 4,225, would in my opinion strengthen the case that the recent selling pressure has exhausted itself.

Silver faces a more complicated outlook, benefiting from the same monetary drivers as gold while remaining exposed to concerns about industrial demand and the outlook for global growth.

Despite this week's gains, all four precious metals remain lower year to date, highlighting the extent of the earlier correction and the work still required to restore confidence in a sustained recovery.

Agriculture remains under pressure

Agricultural commodities also struggled, with grains losing 2.5%, softs 3.3% and livestock 3.8%, extending October's weakness when the Bloomberg Agriculture Index tumbled 8.7%. US harvest pressure, hopes for improved Black Sea exports and aggressive speculative long liquidation have weighed on prices, while this week's crude oil slump added pressure to biofuel-linked crops, particularly soybean oil, which fell 6.2%.

Despite falling agricultural futures prices, global food inflation remains a concern. The UN FAO Food Price Index declined 1.6% in October but remained 5.9% above a year earlier, its fastest annual increase in more than a year. Lower cereal, dairy and meat prices contrasted with continued strength in vegetable oils and sugar, up 18% and 29% respectively over the past year.

The divergence partly reflects differences in index composition, with the FAO index covering a broader range of internationally traded food products, while BCOM Agriculture is more sensitive to grain prices and speculative positioning. Processing and transport costs also influence consumer prices.

Looking ahead, a strengthening El Niño threatens crop production across parts of Asia, Australia and South America, raising the risk that weather-related supply disruptions could reverse some of the recent price declines and renew food inflation pressures.

Outlook: Financial expectations versus physical realities

The coming week will test whether markets have moved too far in anticipating the consequences of Washington's political reset. For oil, attention will remain on US-Iran negotiations, shipping security and the pace at which refinery operations and refined product exports recover. For copper, the focus will be on whether concerns about AI investment translate into actual project delays, and whether the changing political landscape materially reduces the likelihood of US import tariffs.

Gold's ability to defend its recent technical recovery will depend partly on whether lower Treasury yields and reduced Fed tightening expectations can withstand renewed volatility across equity markets.

The central distinction is between what financial markets are beginning to price and what has actually changed in physical commodity markets. While the election has altered expectations for policy, growth and geopolitical developments, many of the supply constraints that supported commodity prices earlier this year remain unresolved. That leaves markets vulnerable to further sharp moves in either direction as political expectations confront economic and physical realities.