Saxo’s Commodities weekly: Geopolitics lift crude and gold

By Ole Hansen, Head of Commodity Strategy at Saxo

The commodities sector is on track for a second weekly gain, with the Bloomberg Commodity Total Return Index up 5% so far this month, lifting year-to-date returns in USD above 8%. This performance significantly outpaces other US dollar-denominated assets, including bonds and equities, with both the S&P 500 and Nasdaq lagging well behind. This week's gain was primarily due to gold and crude oil strength in response to heightened geopolitical tensions following Israel’s latest and so far most aggressive attack on Iran.

While commodities typically rally during periods of robust economic growth, the current upswing is largely driven by geopolitical risks and investment demand for tangible hard assets—particularly for precious metals. Gold has led the charge for months, with silver and platinum recently joining the rally amid a potent mix of rising fiscal debt concerns, tariff-driven supply shocks, weakening consumer confidence, a softening labour market, and continued US dollar weakness. Developments that may soon prompt a dovish—and potentially stronger-than-expected—policy shift by the Federal Reserve. Adding to this the risk of higher inflation and central banks extending their gold-buying spree into a fourth consecutive year, the groundwork for a potential push toward USD 4,000 cannot be ruled out.

Gold rose together with the US dollar on Friday following the Israeli attack in a classic safe-haven move, while recent in-demand metals such as silver and platinum struggled to keep up. We doubt that the attack was the spark bullion needed to reignite the mentioned push towards and above USD 3,500. While we believe the upside remains the path of least resistance, a move higher needs the support from a deteriorating economic outlook driving down funding costs, especially in the US.

In the energy sector, prices have rebounded this month, initially buoyed by seasonal summer demand tightening supply. This has helped offset bearish factors such as rising OPEC+ output and macroeconomic uncertainties. What began as a steady recovery—partly fuelled by short-covering—turned volatile on Friday. Brent crude spiked as much as 13%, reaching USD 78.50 per barrel, after Israel launched a prolonged series of airstrikes on Iranian nuclear and ballistic missile facilities. Thereby reducing the chance of a negotiated solution between the U.S. and Iran which have centered almost exclusively on Iran’s rapidly advancing nuclear program, with the core objective of these talks to limit Iran’s nuclear activities—particularly uranium enrichment—in exchange for relief from US-imposed economic sanctions.

With Iran vowing to respond with missiles and drone attacks, the escalation has once again raised fears of broader conflict in a region responsible for a third of global oil output. Tensions around the Strait of Hormuz—through which over 20 million barrels of oil transit daily—are once again in focus. However, it is worth noting that no energy installations have been impacted by the Israeli strikes, so unless Iran decides to drag other nations, especially the US into the conflict, the risk of a supply disruption remains low and should over time reduce the risk premium currently priced into the market.

Once the geopolitical risk premium and short-term summer demand related tightness starts to fade, the market will once again turn its attention to rising OPEC+ output into the autumn months, as a group of eight OPEC+ members aggressively restores production in an effort to reclaim market share. The added barrels should, over time, temper price gains while raising concerns about a potential oversupply if demand growth stalls.

Meanwhile, industrial metals have been mostly flat this month. Gains in aluminium have been offset by weakness in other segments, particularly copper. Although copper has pulled back slightly, it remains up around 17% year-to-date. Prices continue to be supported by a wide price spread between US and international copper markets, as traders try to guess what level of tariffs the Trump administration eventually will apply on imports.

This price dislocation has prompted traders to ship metal to the US ahead of such tariff announcements, thereby draining exchange-monitored stockpiles in London and Shanghai, tightening supply even as demand remains under pressure from slowing global growth and ongoing trade tensions—especially between the US and China, the world’s largest consumer of copper.13olh_wcu2

Copper stocks monitored by the three major futures exchanges see a 16th weekly drop to a 15-month low at 392 kt, with continued declines in London and Shanghai being only partly offset by a continued increase in New York

Finally, apart from a few pockets of strength, most notably coffee and cattle, the agricultural sector remains under pressure from the prospect of another year of ample supply despite an increasingly volatile weather situation across the world. The Bloomberg Agriculture Subindex trades down on the month and close to unchanged on the year with broad losses across key crops and most softs being offset by recent coffee strength—now fading amid a Brazilian harvest progressing well, and not least the US meat market where import restrictions and a small herd have underpinned prices in recent months.

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Wim Heirbaut
​Senior PR Consultant at Befirm
​wim.heirbaut@bepublicgroup.be
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