Commodity Outlook: Finding antivenoms in the Year of the SnakeWe are about a month into the Chinese Year of the Snake. The preceding Year of the Dragon (10 February 2024 to 28 January 2025) brought significant momentum to the asset class with broad commodities rising 10%, precious metals rising 36%, industrial metals rising 12%, and even energy and agriculture mustering a late gain (close to 2% each)1. However, the Year of the Snake presents several macro challenges for commodities. Renewed trade protectionism from the US, under the new Trump Administration, is likely to dampen global trade. Additionally, higher bond yields and a strong US dollar create further headwinds for the commodities market. China’s reticence to stimulate big is also holding back the asset class.
Despite these headwinds, we have identified several micro factors that could provide support for certain commodities—what we refer to as our ‘antivenoms’. We remain optimistic about precious metals, aluminium, and European natural gas. Additionally, some of the macroeconomic challenges may ultimately prove less severe than initially anticipated, creating potential upside opportunities for commodities that currently reflect bearish sentiment.
Strong US dollar
The recent strength of the US dollar has historically correlated with weaker commodity prices. While this pattern has been inconsistent post-COVID-19, the dollar's resurgence could once again pressure commodities. Historical data suggests a strong dollar often aligns with declining commodity values.
Trump’s trade policies and market impact
Donald Trump’s return to the presidency introduces uncertainty into trade and commodity markets. Trump's first presidency saw a trade war with China and other nations, negatively impacting global trade and commodity prices. While extreme tariff measures have often been bargaining tactics, the risk of real implementation remains. In his second term, some tariffs were announced and then delayed; at the time of writing, we still have no real guide as to whether they will be implemented or when. This uncertainty is already dampening market sentiment and increasing long-term interest rates, further constraining commodities.
Economic and inflationary concerns
Tariffs could raise inflation in the US while simultaneously depressing global commodity prices due to reduced demand. This dynamic may complicate the Federal Reserve’s (Fed) efforts to control inflation, potentially leading to prolonged high interest rates.
Climate policy reversals
Trump has vowed to withdraw from the Paris Climate Agreement and declared a “national energy emergency,” reversing climate regulations and boosting fossil fuel production. His administration is expected to cancel a $6 billion Department of Energy program aimed at industrial emissions reduction and repeal incentives for electric vehicles. These changes could suppress demand for critical materials used in clean technology, such as base metals.
At the same time, deregulation of oil, gas, and mining operations may increase the supply of key commodities like copper, aluminium, nickel, and cobalt. Major projects, such as Rio Tinto’s copper mine in Arizona, could proceed after years of delays. While immediate production increases are unlikely in 2025, long-term supply growth is possible.
Geopolitical risks and energy markets
A ceasefire between Israel and Hamas, brokered just before Trump's inauguration, has eased some geopolitical risk, though its stability remains uncertain. As we write, a peace deal between Russia and Ukraine is being brokered by the US. Short-term oil price spikes are possible if sanctions are initially tightened to get parties to the negotiating table but, ultimately, we could see easing oil and gas prices if a deal is hashed out.
The US has been pressuring Europe to purchase more American natural gas, but Russia’s LNG shipments to the EU remain significant. A resolution of the Russia-Ukraine war could weaken US leverage in energy negotiations, making Europe less dependent on American gas.
Stricter enforcement of Iranian oil sanctions under Trump could drive oil prices higher. However, OPEC2 members may counteract this by increasing supply, potentially offsetting price gains.
China’s economic strategy and commodity demand
China remains the world’s largest consumer of commodities, yet its recent economic weakness has limited demand growth. Unlike previous economic cycles where China launched large stimulus measures, its current approach focuses on smaller, targeted interventions. The government has stabilised the real estate sector but remains wary of excessive stimulus due to debt concerns.
China is investing heavily in clean technology and renewable energy infrastructure, supporting metal prices despite weak real estate demand. US tariffs on China could accelerate its push toward energy independence, promoting domestic adoption of solar, battery, and electric vehicle technologies.
Trade tensions could escalate into retaliatory actions, such as China restricting exports of critical materials, as seen with gallium, germanium, and graphite in response to semiconductor disputes. Further restrictions could impact global supply chains for energy transition materials.
China’s depreciating Yuan complicates economic policy. The People’s Bank of China has been intervening to stabilise the currency, limiting its ability to cut interest rates. While a policy shift to boost growth led to short-term market gains in 2024, further action remains constrained by currency pressures.
Conclusion
In the Year of the Snake, we are searching for antivenoms to counter the potential threats posed by trade wars, a strong US dollar, and a China that may be unable or unwilling to overcome its economic weakness.
We see strong opportunities in gold, silver, aluminium, copper, zinc and European natural gas, as each of these has compelling drivers that could withstand broader headwinds in the commodity complex.
As policies become clearer, we may find that our fears were overstated, potentially paving the way for a relief rally across the broader commodity complex. Until then, we place our confidence in these antivenoms.
