Head of Commodity Strategy
Key Points:
The Bloomberg Commodity Index (BCOM) is heading for a weekly decline of around 1.5%, trimming the year-to-date gain to just over 16%. On the surface, it has been a softer week for the broader complex, but once again the headline number masks an increasingly pronounced divergence beneath. Energy prices continued to weaken, led by a sharp slump in US natural gas, while metals delivered yet another outsized performance, with silver and copper both pushing into fresh record territory and gold showing renewed signs of strength. This growing gap between sectors is becoming one of the defining features of the commodity landscape as we approach year-end and look ahead to early 2026. While the BCOM All Metals Index is now up around 43% year-to-date, the energy sub-index is down close to 10%, a split that reflects a very different balance of supply, demand and investor conviction across the two complexes.
Ahead of the last full trading week of the year, trading activity will continue to dwindle, potentially supporting prevailing trends with no major appetite to make any major position change into a period of thin liquidity. From a strategic perspective, the widening mentioned divergence between surging metals and faltering energy markets is becoming harder to ignore.
Into early 2026, this sets up an interesting playbook. If global growth stabilises and the dollar continues to soften, metals – both precious and industrial – remain well positioned, supported by structural demand from electrification, AI infrastructure and ongoing investor interest in hard assets. Energy, by contrast, may need clearer evidence of tightening balances or supply discipline before sentiment eventually improves, as we believe it will especially towards the second half of 2026.
This week’s FOMC meeting provided an important macro backdrop, even if it did not deliver any major surprises. Despite some objections within the committee, the Federal Reserve went ahead with another 25-basis-point rate cut. The immediate market reaction was a modest bull steepening of the US yield curve, with two-year yields moving lower while ten-year yields edged slightly higher.
For commodities, and metals in particular, the more important signal came from the currency and rates complex. The Bloomberg Dollar Index slipped around 0.6% to a two-month low, reinforcing the view that the dollar may be losing momentum. Combined with easing front-end rates, this helped underpin demand for hard assets, especially those already supported by strong physical and structural demand narratives.
At the same time, longer-dated yields remaining relatively firm speaks to persistent concerns around US fiscal dynamics and debt sustainability. That combination – lower policy rates, a softer dollar and unresolved fiscal anxieties – continues to provide a fertile backdrop for precious metals, even during periods when momentum temporarily pauses.
Silver extended its extraordinary run, gaining another 10% on the week and pushing its year-to-date return to 118%. The rally has been driven by a powerful combination of factors: gold-led investor demand, a decisive technical breakout earlier in the year, and growing recognition that silver’s industrial role – particularly in solar energy, electrification and data-centre infrastructure – leaves demand relatively price-inelastic in the short term.
For now, silver continues to lead, with the tail wagging the dog as reflected in the gold–silver ratio sliding to a four-year low below 68, and near its 30-year average. The main risk to the upside is profit-taking in silver given current overbought conditions as seen through an RSI near 80 which last time it happened in October drove a quick and sharp 16% correction to near USD 45. Applying the same retracement mechanics, a correction from current levels is likely to find strong support in the USD 54.50 to 56.50 area. That said, support remains firm amid robust industrial demand, tight conditions in the London cash market where lease rates remain elevated and continued inflows into silver ETFs.
Copper stockpiles monitored by the three major exchanges rose to a seven-year high this week at 661 kt. Yet despite swelling inventories copper continued to push higher, with LME prices printing fresh all-time highs and year-to-date gains approaching the mid-30% area. One reason being the dramatic shift in the composition of those stocks with a record 405.8 kt, or 61.4% of the total, now held in US COMEX warehouses. This time last year, COMEX stocks stood at just 15.2 kt, equivalent to just 7% of global exchange-monitored inventories.
The looming US tariff threat has upended normal trade flows, effectively stranding a large share of global copper supplies in the United States — a relatively minor consumer in the global copper market — thereby tightening availability elsewhere and underpinning prices. In addition, speculative interest is increasing at a time of persistent supply concerns from the mining sector. Notably, the rally has unfolded despite continued economic softness in China, underlining that the current copper story is increasingly driven by supply constraints and demand tied to energy transition and AI-related infrastructure.
Gold, while less spectacular on a week-to-week basis, resumed its push toward the October record after spending the past couple of weeks consolidating around USD 4,200. The metal added around 3% on the week, supported by the softer dollar, easing front-end yields and ongoing central-bank and institutional demand. Importantly, gold’s ability to hold firm during periods of rising real yields earlier this year has reinforced its role as a hedge against fiscal and geopolitical uncertainty rather than a simple rates trade.
We remain constructive on precious metals into 2026 amid tight conditions in the physical market and continued investor demand for hard assets driven by political and economic uncertainty. After an exceptional run, near-term upside looks more limited. However, any correction is more likely to trigger rotation within the complex rather than outright liquidation, with gold now appearing relatively inexpensive versus silver on a relative basis. Seasonally, gold often strengthens after the December FOMC meeting and into late February, a pattern that this year is reinforced by easier monetary conditions after the Fed announced fresh balance sheet expansion through Treasury bill purchases while President Trump is likely to choose 'easy money man' Kevin Hassett next year as the new Fed chair. Energy markets were once again the weakest part of the complex. Crude oil prices drifted lower as traders focused on the risk of a developing surplus in the coming months, with demand growth expectations failing to keep pace with rising supply. The sense that the market is well supplied, at least in the near term, continues to outweigh episodic geopolitical risk premiums.
Monthly oil market reports from OPEC and the IEA highlighted a continued divergence in forecasts with OPEC's 2026 forecast pointing to a balanced world market, while the International Energy Agency - while paring its projections - continues to expect a record surplus of more than 4 million barrels a day. Top trader Trafigura Group went further to say the surplus could amount to a "super glut" siting major new oil projects that were planned years ago and which are now coming on stream just as demand growth slows.
However, despite these predictions, Brent continues to trade above USD 60 with the forward curve not yet supporting the so-called carry trade which is required to remove crude from the market and into profitable storage plays for a period of time. In addition, Venezuela and Russian supply remain key wildcards that could suffer further disruptions amid sanctions enforcement and tanker seizures.
Refined products followed crude lower. Diesel, gasoil and gasoline all softened on the week, reinforcing the message that demand is not yet strong enough to tighten balances meaningfully as we move deeper into the winter.
US natural gas stood out as the week’s biggest mover, tumbling close to 18% in its worst weekly decline in nine months. January futures slid to around USD 4.2 per MMBtu as weather forecasts shifted decisively milder, sharply reducing expectations for near-term heating demand.
The speed and scale of the reversal is a timely reminder of just how weather-sensitive the gas market remains. Only weeks ago, prices had surged to multi-year highs near USD 5.5 per MMBtu on colder forecasts and robust LNG export demand. This week’s collapse highlights how quickly sentiment can turn once the weather narrative changes.
The weakness was mirrored in Europe, where gas prices fell to a 20-month low of EUR 26.6 per MWh (USD 9.13 per MMBtu), a year-over-year decline of 42%. Persistent mild weather has continued to suppress heating demand, while traders also keep an eye on any progress toward a potential Russia–Ukraine peace deal. Longer-range seasonal forecasts currently point to above-normal temperatures through the start of next year.
The agriculture sector is on track for a modest weekly loss, but here too the aggregate number hides significant variation.
Grains were broadly weaker, with soybeans once again in focus after a sharp tumble. Prices have been pressured by a combination of wrong-footed speculative length and disappointment over the pace of Chinese buying. Expectations earlier in the year that China would return aggressively to the US market have so far not been met, leaving a sizeable amount of speculative positioning exposed as prices roll over. Corn and wheat also struggled, reflecting ample supply and limited near-term demand catalysts.
In contrast, parts of the softs and livestock complex continued to perform well. Sugar and coffee edged higher, while live cattle and feeder cattle extended their strong year-to-date runs, supported by tight supply conditions and firm demand.
Cocoa deserves special mention. Prices surged more than 10% on the week to USD 6,300, thereby continuing its rebound from its recent low at USD 5,0000, and while the market tightness has eased in recent months, there is an additional structural factor at play. Cocoa is set to re-enter the Bloomberg Commodity Index in 2026 as part of the annual reweighting, a change that is already drawing attention to potential index-related flows into a relatively small and illiquid market.
The upcoming annual reweighting of the BCOM index adds another layer as we head into year-end, with cocoa set to return and the index expanding to 25 contracts in 2026. While reweightings do not alter fundamentals, they can influence short-term price action, particularly in smaller and tighter markets where passive flows matter.
At the sector level, energy’s weight edges lower to 29.4%, driven by reduced allocations to Natural Gas (7.2%) and WTI (6.6%), while Brent rises to a record 8.4% and becomes the dominant crude benchmark. Precious metals increase slightly to 18.8%, with gold remaining the largest single component at 14.9%. Industrial metals rise to 15.8%, led by a meaningful increase in copper’s weight to 6.4%, reinforcing the index’s tilt toward electrification themes. Grains are reduced to 21.2%, while Livestock rises to 5.6% and Softs to 9.2%, reflecting both cocoa’s return and a broader emphasis on agricultural diversification.
BCOM keeps applying its usual diversification rules: no sector above 33%, no single commodity plus its derivatives above 25%, no single commodity above 15%, and a 2% minimum per commodity where liquidity allows. Weights are derived from liquidity and production data in a roughly 2:1 ratio, so the 2026 shifts are mostly a mechanical response to changing market size and tradability rather than discretionary macro views
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