Trump and Republican victories spark commodity decline amid tariff and growth concerns
By Ole Hansen, Head of Commodity Strategy at Saxo
Global financial markets have reacted, in some cases aggressively, as the US election results increasingly indicate a strong victory for Trump and the Republican Party. This outcome is close to forming a “Trump 2.0” or a “Red Sweep,” where the Republicans could control both the White House and Congress, giving them substantial leverage in upcoming high-stakes tax and spending negotiations. So far, the results have driven the USD to a one-year high, with the currencies suffering the biggest setbacks being the Mexican peso, the Japanese yen, and the euro, the two former affected by the potential divergence between the rate path of the FOMC and other major central banks.
The US yield curve has bear-steepened, with long-term yields rising more quickly than short-term yields, as concerns grow that Trump's unfunded tax cuts and tariffs on imports might reignite inflation fears, potentially slowing the pace and depth of future US rate cuts.
Overnight trading saw widespread losses across the commodities sector, with the Bloomberg Commodity Index losing close to one percent as traders began pricing in the likelihood of the mentioned “Trump 2.0” scenario. This scenario is expected to bring about the promised tariffs on imported goods, particularly targeting China, potentially triggering a new wave of trade tensions and economic disruptions. Reflecting these expectations, industrial metals experienced some of the largest declines, led by copper and iron ore, which are highly sensitive to trade dynamics and industrial demand. The anticipation of strained trade relations has stoked concerns over future demand, with metals markets reacting strongly to the heightened uncertainty.
Agricultural commodities were also hit, with grain prices, particularly soybeans, trading lower. This reflects fears that China could respond with retaliatory measures, potentially reducing US exports of key crops and creating downward pressure on prices. China, as one of the largest buyers of US soybeans, is a crucial market for American farmers, and any disruption to this trade flow could have significant implications for the agricultural sector.
Crude oil has also moved lower, pressured by the possibility that a tit-for-tat global trade war could dampen demand and add strain to an already weak market outlook projected for 2025. This anticipated decline in demand for oil and related products stems from concerns that an increase in tariffs may slow global economic growth, thereby lowering demand for energy. The geopolitical landscape will also attract close attention, especially the US-Russia relations, the Russia-Ukraine war, and the Middle East, where a Trump administration may tighten sanctions on Iranian oil flows.
Gold prices temporarily broke lower before finding support ahead of USD 2,700, weighed down by ongoing US dollar strength as markets consider the Federal Open Market Committee’s (FOMC) potential response to inflation risks. With fears that tariffs and fiscal policies could rekindle inflationary pressures, there is growing concern that the FOMC may adopt a more cautious approach to cutting interest rates.
Overall, the election results reinforce our bullish outlook on safe-haven metals, as the heightened market volatility and uncertainty could drive increased demand for these assets. However, near-term risks remain, as late-entry long positions in these metals may be vulnerable to selling pressure as the dollar strengthens and Treasury yields climb. Additionally, silver is worth watching as a potential driver of gold prices after the metal suffered a technical breakdown, reflecting the overall weakness seen across industrial metals.
Gold trades softer but holding above support at USD 2700 followed by USD 2685.
