Commodity Weekly: Gold and copper in focus as rally extends further Commodity Weekly: Gold and copper in focus as rally extends further Commodity Weekly: Gold and copper in focus as rally extends further

Commodity Weekly: Gold and copper in focus as rally extends further

Ole Hansen

Head of Commodity Strategy

Summary:  The Bloomberg Commodity Index trades up by 2.4% on the week, reversing some of its early January losses. This comes after the energy sector - natural gas being the exception - joined an ongoing rally across metals, led by gold and copper. Driven by a softer dollar as US inflation eases and not least the prospect of China's reopening triggering a fresh boom in demand for raw materials.

Today's Saxo Market Call podcast.
Today's Market Quick Take from the Saxo Strategy Team

The Bloomberg Commodity Index trades up by 2.4% on the week, reversing some of its early January losses. This comes after the energy sector – natural gas being the exception – joined an ongoing rally across metals, led by gold and copper. The main driver impacting the commodity sector is the prospect of China’s reopening, in turn driving expectations for a pick-up in demand for commodities from the world’s biggest consumer of raw materials. In addition, risk sentiment has also been supported by a continued and broad drop in the dollar as US inflation continues to ease, thereby supporting a further downshift in the Fed’s rate hike trajectory.

The strong gains seen during the past few weeks – especially in gold and copper – have in our opinion showed the correct direction for 2023. However, while the direction is correct, we believe the timing could be slightly off, thereby raising the risk of correction before eventually moving higher. With activity in China unlikely to pick up in earnest until after the Lunar New Year starting later this month, the prospect of a lull in activity could be the trigger for a pause in the current rally, before gathering fresh momentum and strength towards the end of the current quarter.

In the short term, the dollar remains a key driver, and apart from the Chinese renminbi and AUD gaining strength as China reopens, the Japanese yen has also seen strong gains, with the Bank of Japan’s upcoming meeting on January 18 shaping up to be a major risk event.

The recent news flow and rumor mill anticipate the Bank of Japan announcing further tweaks to its yield-cap policies. This comes at a time when Japanese 10-year bonds continue to test the 0.50% upper limit of the permitted trading band. A widening of the band would allow a further narrowing of yield spreads between (rising) Japanese and (falling) US yields, thereby supporting further JPY strength, and commodity supportive dollar weakness.

There is no doubt that US inflation has peaked, partly aided by lower commodity prices in recent months. A key question for 2023 remains its ability to return all the way back towards 2.5% – a level currently being priced in as the medium and long-term target.

Russia’s attempt to stifle a sovereign nation and the western world's push back against Putin’s aggression remains a sad and unresolved situation that continues to cause havoc across global supply chains of key commodities – from crude oil, fuel and gas to industrial metals and key crops.

The introduction of an EU embargo on Russian fuel products from next month may trigger a bigger disruption than the oil embargo that was implemented last month. Europe will have to look elsewhere for its diesel and gasoline while Russia may struggle to find buyers prepared to buy its products. With Europe increasingly showing signs of narrowly avoiding a recession and with Chinese demand for fuel products expected to rise, the prospect for higher oil prices later in the year remains.

Copper, the star performer on China reopening hopes

Copper has led a strong start to 2023 for industrial metal prices on hopes of a potential surge in demand from China, the world’s top consumer. This is buoyed by the reopening of China’s economy and increased policy support to fuel an economic recovery to offset the economic fallout from President Xi’s failed and now abruptly abandoned zero-Covid policies. This optimism has been mixing with a weaker dollar on speculation that the Federal Reserve is slowing down the pace of future rate hikes as the inflation outlook continues to moderate.

The VanEck Global Mining UCITS ETF – which includes titans like BHP, Rio Tinto, Glencore, Vale and Freeport-McMoRan – trades up 10.5% so far this month, a nine-month high. Glencore makes around 40% of its revenue from copper, while BHP makes 26.7% and Rio makes 11%. In addition, the iron ore futures traded in Singapore have cleared $125 per ton for the first time in six months in anticipation of a strong seasonal pick-up in demand following the Lunar New Year holiday.

The initial and strong rally in copper has primarily been driven by technical and speculative traders expecting demand from China to underpin prices in the coming months. Once the initial move is over, the hard work begins, with an underlying rise in physical demand needed to sustain the rally. During this phase some profit taking may emerge, giving potential buyers another opportunity to get involved.

Copper, up close to 10% this month, trades near a seven-month high with the latest run up occurring when the price broke above the 200-day moving average, now support at $3.8350 per pound. Since then, momentum and technical buying has seen the HG copper contract break several resistance points, the latest being $4.0850 per pound, the 50% retracement of the 2022 sell-off. Before seeing the next extension – potentially towards $4.31 per pound – the metal may need to cool off, allowing for a retracement lower towards the $4 per pound area.

Source: Saxo

Gold’s positive start continues

Gold jumped out of the gate to kick off 2023 with strong gains as the positive momentum from December carried over into the new year. This supports our view that 2023 will be friendlier towards investment metals, as last year’s headwinds – most notably dollar and yield strength – begin to reverse.

In addition to the above-mentioned supportive drivers for gold this year, we see continued strong demand from central banks providing a soft floor in the market. During the first three quarters of last year, the World Gold Council reported official sector purchases of 673 tons, higher than any full year since 1967. Adding to this a total of 62 tons bought in November and December from the Peoples Bank of China. Part of that demand is being driven by a handful of central banks wanting to reduce their dollar exposure. This de-dollarization and general appetite for gold should ensure another strong year of official sector gold buying.

Adding to this, we expect the friendlier investment environment for gold to reverse last year’s 120 tons reduction via ETFs to a potential increase of at least 200 tons. However so far, and despite the strong gains since November, we have yet to see demand for ETFs – often used by long-term focused investors – spring back to life, with total holdings still hovering near a two-year low at 2923 tons. Speculative technical buying therefore seems to be the main current driver, led by continued demand from hedge funds who turned net buyers in early November when a triple bottom signaled a change away from the then prevailing strategy of selling gold on any signs of strength.

In the short-term, gold looks increasingly in need of a correction, with that risk being supported by lower physical demand while traders get use to higher prices – not least in India where demand, according to Reuters, plunged 79% in December from a year earlier. Gold has not traded below its 21-day moving average since early November, and the January surge has seen that gap widen, but with RSI signaling overbought conditions, a correction towards the lower channel band, currently at $1830, cannot be ruled out.

Source: Saxo

Crude oil reverses early January losses on China

Crude oil prices rallied strongly this past week on optimism that China will see a robust recovery in demand for crude oil and fuel products. This comes as the nation reverses its zero-Covid policies and recession fears in the US and Europe begin to fade – despite the IMF warning that one third of the world economy would end up in a recession this year. Earlier in the week, a huge 19m barrels build in US inventories – the biggest since February 2021 – had no negative price impact. Higher inventory levels were to be expected, driven by the late December cold blast reducing exports while temporarily shutting down some refineries.

While supply is expected to exceed demand this quarter, thereby keeping price gains capped, the outlook further into the year still points to emerging price support as balances tighten and the impact of rising Chinese demand and sanctions on Russian fuel products from February begin to be felt. Through its active management of oil supply, OPEC+ has helped create the perception of a soft floor under the market, thereby dissuading potential recession-focused sellers from getting too aggressively involved.

In the short term, we see limited risks of WTI and Brent breaking their established ranges – with Brent trading between $75 and $90. However, once spring arrives across the Northern Hemisphere, that stance will change towards a long bias.

Soft commodities, led by coffee and cotton, is the only sector trading down on the week. The Arabica coffee futures contract has stumbled badly into the new year, down 11% on the year and hitting a 20-month low before rebounding slightly. This is driven by a stronger Brazilian Real and demand concerns potentially together with a pick-up in supply from Brazil following a troubled 2022 season. Responding to these developments, we have seen inventory levels at ICE exchange-monitored warehouses more than doubling since hitting a multi-decade low in November.

Cotton meanwhile returned to the lower end of its established 80 to 90 cents per pound range after the US Department of Agriculture (USDA) raised domestic stockpiles in response to stronger production and reduced exports. “Major consumers including China, India, and Pakistan are facing challenges including a downward trend in profit margins and yarn orders, which in turn have resulted in conservative buying practices for cotton lint,” the agency said.

The Bloomberg Grains Index, rangebound for the past six month, but down on the year – primarily driven by lower wheat prices on ample supply from the Black Sea region – received a small boost after the USDA released its monthly supply and demand report. The report saw corn and soybean prices jump after the USDA cut its outlook for US domestic production and available stocks, a sign that an ongoing drought from last year may continue to underpin prices into 2023. US quarterly stock levels on December 1 dropped to a 15-year low for wheat, a nine-year low for corn and a two-year low for soybeans.

In South America, the worst Argentinian drought in 60 years has also led to a downgrade in the outlook for soybeans and corn production, although this is partly offset by an expected bumper harvest in Brazil. One bright spot was wheat, where the USDA raised its outlook for global production, not least in the US where winter wheat plantings this year are expected to be the biggest since 2015.

Quarterly Outlook 2024 Q3

Sandcastle economics

01 / 05

  • Macro: Sandcastle economics

    Invest wisely in Q3 2024: Discover SaxoStrats' insights on navigating a stable yet fragile global economy.

    Read article
  • Bonds: What to do until inflation stabilises

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain inflation and evolving monetary policies.

    Read article
  • Equities: Are we blowing bubbles again

    Explore key trends and opportunities in European equities and electrification theme as market dynamics echo 2021's rally.

    Read article
  • FX: Risk-on currencies to surge against havens

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperform in Q3 2024.

    Read article
  • Commodities: Energy and grains in focus as metals pause

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities in Q3 2024.

    Read article


The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
Notification on Non-Independent Investment Research (
Full disclaimer (
Full disclaimer (

Saxo Bank (Schweiz) AG
The Circle 38

Contact Saxo

Select region


All trading carries risk. Losses can exceed deposits on margin products. You should consider whether you understand how our products work and whether you can afford to take the high risk of losing your money. To help you understand the risks involved we have put together a general Risk Warning series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. The KIDs can be accessed within the trading platform. Please note that the full prospectus can be obtained free of charge from Saxo Bank (Switzerland) Ltd. or the issuer.

This website can be accessed worldwide however the information on the website is related to Saxo Bank (Switzerland) Ltd. All clients will directly engage with Saxo Bank (Switzerland) Ltd. and all client agreements will be entered into with Saxo Bank (Switzerland) Ltd. and thus governed by Swiss Law. 

The content of this website represents marketing material and has not been notified or submitted to any supervisory authority.

If you contact Saxo Bank (Switzerland) Ltd. or visit this website, you acknowledge and agree that any data that you transmit to Saxo Bank (Switzerland) Ltd., either through this website, by telephone or by any other means of communication (e.g. e-mail), may be collected or recorded and transferred to other Saxo Bank Group companies or third parties in Switzerland or abroad and may be stored or otherwise processed by them or Saxo Bank (Switzerland) Ltd. You release Saxo Bank (Switzerland) Ltd. from its obligations under Swiss banking and securities dealer secrecies and, to the extent permitted by law, data protection laws as well as other laws and obligations to protect privacy. Saxo Bank (Switzerland) Ltd. has implemented appropriate technical and organizational measures to protect data from unauthorized processing and disclosure and applies appropriate safeguards to guarantee adequate protection of such data.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc.