Commodities weekly: AI disruption fears rattle equities while commodities retain leadership

Commodities and resource equities emerge as relative winners

Against this backdrop of equity market uncertainty, commodities and commodity-linked equities have delivered strong performance. On a sector basis – as per the table below - we are witnessing gains across all sectors except softs, which have seen broad losses led by cocoa and coffee. Besides energy, which has seen surprisingly strong gains as geopolitical risks have reduced the supply-glut focus that prevailed at the start of the year, precious metals have delivered gains despite a historic slump at the start of the month, which the sector is still trying to recover from.

Natural gas is flat on the year and trades near a four‑week low around USD 3.14/MMBtu after moving within a wide USD 3–8 range so far this year. A recent U.S. winter storm and ongoing cold weather have driven stockpiles down by more than 600 billion cubic feet over the past two weeks to 2.214 tcf, leaving inventories 5.5% below the five‑year average. With projections pointing to another sizeable draw next week, the market could become vulnerable if the cold spell extends into March.

Besides slowing activity in China ahead of the Lunar New Year holidays, nickel traded lower on the week despite Indonesia, the world’s largest supplier, taking steps to support prices by instructing one of its biggest mines to cut output. Aluminum also declined following reports that the Trump administration is considering narrowing the scope of U.S. import tariffs on certain metal products. The levies introduced last year on aluminum and steel disrupted global trade flows, reducing shipments to the U.S. while lifting domestic prices.

Sugar futures slid to a five‑year low and have now more than halved since the November 2023 peak above 28 cents/lb, pressured by prospects of a bumper Brazilian crop set to widen the global surplus. The downturn has also been reinforced by a sharper‑than‑expected slowdown in sugar consumption across the U.S. and other developed economies — partly linked to the growing uptake of GLP‑1 weight‑loss drugs, which curb appetite for sweeteners.

Elsewhere, the grains sector — a favourite short among speculators in recent months — is showing early signs of a comeback. The move has been led by strong demand for soybean oil and, more recently, wheat, supported by concerns over the US winter wheat crop and fund short covering after many months of elevated bearish positioning by hedge funds.

Within the soy complex, soybean oil has emerged as the clear outperformer, gaining roughly 18% year to date and in the process decoupling from soybeans (+9%) and meal (+3.3%). The strength reflects a structural demand shift tied to the energy transition, with bean oil evolving into a strategic energy input rather than purely a food commodity. Higher biofuel blending mandates for 2026–27 have effectively placed a floor under domestic consumption, while renewable diesel capacity added in late 2025 continues to absorb growing volumes of feedstock.

Copper continues to gyrate around USD 6/lb. Rising visible inventories, softer pre‑holiday demand in China, and a cash‑to‑three‑month contango in London signal ample near‑term supply, offsetting copper’s appeal as a long‑term investment theme driven by electrification, AI data‑centre power demand, electric vehicles, and cooling infrastructure. While the longer‑term narrative remains supportive, near‑term upside may stay capped until post‑holiday demand signals re‑emerge.

Overall, these developments have supported the asset class, with the Bloomberg Commodity Total Return Index (BCOM) trading higher by around 7% year to date, and 15% in the past 12 months, supported by resilient demand, supply constraints, a softer dollar, and ongoing geopolitical uncertainty.

Supported by these evolving themes, investor flows into hard assets remain robust. ETFs tracking gold, silver, copper, and uranium miners have posted gains in the 15%–21% range, reflecting continued demand for inflation hedges, energy-transition metals, and assets perceived as resilient during periods of financial market stress. This divergence between struggling growth equities and strengthening real assets highlights an important shift in market leadership—one that may continue to shape cross-asset allocation decisions in the months ahead.

Metals rebound challenged by equity market concerns

Gold and silver both suffered a fresh setback as part of the broader Wall Street selloff driven by concerns over AI’s impact on corporate earnings. The moves being amplified by thin liquidity conditions, with traders still rattled following the historic rout at the beginning of the month. Silver once again bore the brunt of the pressure, as near-term technicals remain soft and Chinese traders scale back activity ahead of the Lunar New Year holiday, which will shut markets for more than a week, starting on 15 February.

Gold has, despite the recent correction, taken tentative steps toward normalisation. Volatility has retreated toward pre‑correction levels while prices attempt to re‑anchor around USD 5,000. Although the metal remains vulnerable to episodic risk reduction from systematic and automated strategies, reduced positioning among leveraged funds such as hedge funds and CTAs should limit spillover pressure from other sectors.

Strategic demand remains intact, supported by central‑bank buying, reserve diversification, fiscal concerns, and geopolitical uncertainty. Having recovered roughly half of the USD 4,690–5,900 correction range, a break above USD 5,140 could signal renewed upside momentum, while a move below USD 4,860 may indicate a more prolonged consolidation phase.

Silver once again absorbed the bulk of the pressure and remains the market’s primary tail‑risk metal. Volatility stays elevated and near‑term technicals remain soft as Chinese participation fades ahead of the Lunar New Year shutdown. The Shanghai premium has collapsed to low single digits, reducing east‑west tension. While structural deficits and longer‑term supply tightness remain supportive, high prices risk demand substitution and increased scrap flows.

Why a COMEX-driven silver squeeze remains highly unlikely

Those pinning their bullish silver expectations on another squeeze are currently focusing on COMEX registered stocks versus open interest in the March contract, which reaches first notice day on 27 February. The narrative is that potential deliveries could exceed “available” stocks. Several reasons why this is unlikely to become a constraint:

a) Open interest typically falls sharply ahead of the notice (delivery) period as positions are rolled forward or closed. b) Delivery unfolds across the whole delivery month until 30 March, and only shorts can initiate delivery by issuing notices after which the clearinghouse assigns delivery to long position holders who remain open through the period. c) The exchange framework reduces “default” risk via spot-month position limits and delivery/certificate limits, and it retains emergency powers (including ordering liquidation for participants unable or unwilling to make or take delivery). d) Registered stocks are not static, metal can be moved from eligible to registered as warrants are issued.