For commodity investors, the most pressing question is how the markets will react as Donald Trump returns to the White House. The new President is set to be inaugurated on January 20, 2025.

A New Price Surge on the Horizon?

Historically, during the last two election cycles, regardless of whether the winner was from the Republican or Democratic party, commodity prices, as measured by the S&P GSCI index, tended to rise.

The CRB commodity index further supports this view. In the 2016 election year, it recorded an almost 10% increase, followed by a 2% rise in 2017 and a 12% jump in 2019, with an intervening decline of nearly 11%. In 2020, the CRB index dropped by over 9% before entering a relentless upward trend during 2021–2022, becoming one of the best-performing asset classes. However, the index leveled off in 2023 as the world undertook a massive campaign to combat inflation.

Source: BlackRock

Recently, commodity prices measured by the index have seen a significant drop amidst global inflation-fighting measures, leaving the market far cheaper compared to the 2021–2022 peaks. This steep decline suggests that many of the risks depressing prices are already priced in, meaning there is room for a rebound. These risks include concerns over a global recession, sluggish manufacturing activity, and weak domestic demand coupled with overcapacity in China, the world’s second-largest economy.

These factors hint at the possibility of another price rally in commodities, potentially reviving the inflationary nightmare, which could spell trouble for central banks globally.

If this scenario unfolds, the Federal Reserve (Fed)—the world’s most influential central bank—may have to reconsider its recent accolades about inflation nearing target levels and labor market easing. These were the key conditions driving the Fed’s decision to cut rates by 75 basis points over the past two Federal Open Market Committee (FOMC) meetings.

The Fed’s first rate cut, a landmark move marking the first reduction in four decades, shocked the market with a 50-basis-point cut. The Fed’s current target rate range is 4.5%–4.75%. Policymakers, backed by seasoned experts, aim to avoid repeating past mistakes of labeling inflation as “transitory.” However, they may need to reassess if commodity prices climb significantly.

The Dollar and Rate Cuts

In theory, rate cuts tend to weaken the U.S. dollar (USD), mirroring trends observed in the early 2000s and post-global financial crisis, when the USD index (DXY) plummeted against a basket of six major currencies. A weaker USD is expected to support commodity prices. However, the USD’s long-term future remains uncertain, subject to Trump’s and the Fed’s policies.

Concerns over China’s weakened demand are somewhat alleviated by the Chinese government’s recent $1.4 billion stimulus package aimed at reducing local government debt, stabilizing growth, and restoring consumer and housing market confidence.

Meanwhile, the rise of other emerging Asian economies like India and Vietnam in expanding production capacity could offset China’s demand shortfalls in the medium term.

Outlook for Metals and Agricultural Commodities

Analysts believe metals will shine under Trump’s presidency. Deregulation in mining could boost the supply of metals, making them more readily available for industrial use. Simultaneously, proposed infrastructure spending could drive demand for metals like steel and copper.

Fundamentally, copper (used in wiring, industrial machinery, and construction) and aluminum (long-distance power lines, automotive manufacturing, and other industrial applications) are witnessing growing demand as nations outside China focus on production. This demand surge, coupled with supply constraints, supports higher prices.

Additionally, the global shift to cleaner energy is increasing demand for uranium (low-emission nuclear energy) and lithium (used in EV batteries), despite supply challenges.

Copper, in particular, is central to the global green transition, playing a pivotal role in clean energy technologies—from EV batteries to wind turbines, solar panels, and electric grids. With demand expected to outpace supply growth, prices are poised to climb.

According to the International Copper Study Group (ICSG), copper production is projected to grow at a compound annual growth rate (CAGR) of 2.2% through 2034, below the demand growth rate of 2.6%. This opens up significant investment opportunities in copper.

Platinum is another commodity worth noting. As one of the rarest and most valuable metals, platinum is crucial in both industrial applications and as an investment asset. Its unique properties and high demand in areas such as automotive manufacturing (catalytic converters) make it a “hot” commodity.

In agriculture, Trump’s trade policies could impact commodity prices, particularly regarding U.S.-China trade relations. Any trade agreements or tariffs could shift the flow of agricultural exports, affecting prices for items like corn and soybeans.

Additionally, changes to biofuel regulations could influence these markets, as corn is a primary ingredient for ethanol production. A biofuel-friendly stance could boost corn demand and drive prices higher. Notably, corn futures spiked immediately following Trump’s election victory.

 Investment Opportunities

These arguments point to a potentially bullish commodities market in the near future. Metals (copper, platinum) and agricultural products (corn, soybeans) appear to have solid foundations for growth. Moreover, accessing these commodities for direct investment has never been easier, as they are among the top 10 most-traded items on the Vietnam Commodity Exchange (MXV) in Q3 2024.

Unlike stocks or real estate, commodity investors can profit not only from price increases but also from price declines, presenting numerous opportunities in the market.

SFVN is currently offering a 50% discount on trading fees, making it easier for investors to join and capitalize on recent market volatility.

Source: SFVN