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Key Points:

The Bloomberg Commodity Total Return Index is heading for a small weekly gain, trading just shy of its highest weekly close in three years, with the year-to-date return now exceeding 10%, masking some notable divergences across sectors, with the phenomenal 49% rally in precious metals (gold and silver), and a 10% gain in industrial metals, led by copper and recently supported by zinc, being partly offset by weakness in energy, albeit only in crude oil and natural gas while the products, led by diesel, trade up on the year. Finally, the agriculture sector trades small down on the year, with heavy losses in grains being offset by individual strong gains across softs and livestock, most notably arabica coffee and cattle.

Returning to this past week, the top-performing sector was industrial metals, led by copper, while natural gas extended its weather-driven rally. Precious metals remained firm, with gold holding close to fresh records, while the energy sector slumped on oversupply worries, led by crude oil and diesel. The overriding macro theme has been the US government shutdown and the uncertainty it injects into data flow, positioning visibility, and investor sentiment. The experience of the 2018–19 record-long shutdown saw a prolonged data blackout create distortions, impairing transparency, while leaving speculative flows unchecked.

Shutdown implications for commodities

The latest US government shutdown has already triggered some reactions in commodity markets, with precious metals like gold and silver rallying, while energy and agricultural sectors face heightened risks. Historically, brief shutdowns cause moderate, temporary disruption, but a prolonged standoff may magnify the impacts, fundamentally shifting sector dynamics.

Gold and other metals have benefited modestly from safe-haven flows, as the shutdown highlights fiscal dysfunction, growing US government debt problems, but also the prospect for lower funding costs as the FOMC supports the economy through additional rate cuts.

Crude oil and products remain under pressure this week, and while the prospect for additional OPEC+ supply dominated, a prolonged shutdown may hurt prices for fears of shrinking demand from slower economic activity.

The grains sector sees price discovery challenges without USDA reports, raising volatility risks when data resumes. In addition, farm operators and agribusinesses are hit by halted loans and stalled government payments at a time when harvest pressure and lack of Chinese demand for soybeans continue to weigh on prices.

The temporary US government shutdown will halt Friday’s scheduled release of the CFTC’s closely watched Commitment of Traders report (COT), covering futures positions held across forex, financial markets, and not least commodities. During the 35-day shutdown from 22 December 2018 to 25 January 2019, the flow of positioning data was severely disrupted, with the COT report only catching up by 8 March that year. Depending on the duration of the current shutdown, managed money and other speculative accounts may again operate under the radar for an extended period.

Energy: crude oil and products under pressure

The energy sector was last week’s laggard, with Brent, WTI, diesel, and gasoline all trading sharply lower. OPEC+ production rose strongly in September, with Saudi Arabia alone adding 320,000 barrels per day. Venezuela hit the symbolic 1 mb/d mark for the first time since 2019, and Libyan exports also grew. The result is an uncomfortable supply overhang just as demand signals soften into Q4 and beyond. However, while Brent’s break below USD 65 was technically significant, opening the door to further downside, the so far limited response from traders potentially signalled selling fatigue and a belief the latest drop may dissuade OPEC+ from announcing a bumper increase next month.

For now, however, traders must deal with several headwinds potentially weighing on prices. Refining margins remain compressed, leaving little cushion for products, while oil-on-the-water has risen toward a 10-year seasonal high, underscoring the current imbalance. Market fears that OPEC+ could announce a production hike of up to 500,000 barrels at this Sunday’s meeting. Elsewhere, Iraq is resuming exports to Turkey via Kurdistan, while Russian seaborne crude exports have reached the highest since early 2024 after Ukrainian strikes on refineries reduced domestic demand for crude.

Natural gas: weather-driven rally

US natural gas was the week’s top performer, up 7%, supported by early-season heating demand and rising US liquefaction demand for gas, with flows to US LNG plants soon expected to exceed the 16.7 million cubic feet recorded back in April. While production and maintenance events are likely to keep prices volatile, the supporting prospect for a tightening market into 2026—with the November 2026 futures contract trading at an 84-cent premium to the current November contract—has seen a steady rise in the past few months.

Copper: supply tightness trumps macro concerns

Copper gained 5% despite Golden Week removing Chinese buyers from the market. Supply disruptions, most notably at Grasberg in Indonesia, overshadowed macro softness. Visible inventories monitored by the LME and SHFE remain low showing little cushion, with the bulk currently being held stateside. The market’s willingness to rally without Chinese participation underscores a structural tightness narrative.

The Grasberg disruption recently helped LME copper break key resistance at USD 10,160 per tonne, with prices climbing to a May 2024 high near USD 10,600. In New York, HG copper futures traded back above USD 5 per pound for the first time since the late-July non-tariff price collapse. Adding to the momentum, a tightening supply outlook has drawn in additional investment demand—mirroring the flows recently seen in silver and platinum, which along with gold have both benefitted from the so-called debasement trade, a function of investors being concerned about the viability of fiat currencies, instead seeking safety in hard assets, especially those with an already tight or tightening supply outlook.

Gold and silver: resilient despite overbought signals

Gold’s powerful rally since Powell shifted his tone at Jackson Hole in August, at the same time as political noise challenged the Fed’s independence, triggered a technical breakout that has since lifted prices by 16.5%. Several new records have been set, the latest just below USD 3,900, a level that has so far triggered profit-taking and consolidation given stretched technical readings.

The usual risk of a pullback during China’s Golden Week, when physical demand tends to ease, has not yet emerged. Instead, investors in the West have stepped in, with gold-backed ETF holdings having risen 150 tonnes since August, reaching a three-year high near 3,025 tonnes. This shows how speculative buyers and real-money accounts continue to “buy the dip.”

With many potential investors suffering from vertigo following a 45% year-to-date rally, the bigger question is whether we are seeing a paradigm shift in how tangible assets such as metals are perceived. In a more fragmented world, where the West has weaponised markets, payment systems, and monetary channels, sanctions and asset freezes have eroded trust in traditional safe havens—particularly the dollar and US government bonds.

China remains central. If households keep diverting flows from property into gold, the trend could persist. Together with central-bank demand since 2022—when Russian reserves were frozen—this shift has helped break down long-standing correlations and may explain why gold keeps defying gravity. Crucially, Chinese imports are a one-way flow: once gold is inside the country it cannot easily be exported.

Grains: harvest pressure and trade headwinds

Grains traded mixed, with corn and wheat both sliding, while soybeans managed to stay marginally positive. USDA’s quarterly stocks report surprised with corn supplies at 1.53 billion bushels, 15% above trade expectations. With harvest pressures weighing on prices in general, speculators, according to the latest Commitment of Traders Report - held net short positions across all six major CME-traded grain and oilseed contracts for the first time in 20 months. The combined net short was also the largest ever recorded for this period.

This highlights a market where speculators currently view the path of least resistance as lower, reinforced by the steep contango structure across key crops. In such an environment, short sellers can profit even if outright prices remain unchanged. A key focus ahead is the end-October meeting between Trump and Xi Jinping in South Korea, where Trump is expected to raise the issue of soybean purchases. US soybean farmers are urgently seeking a deal that could restore demand from China, which normally buys 60% of exports but has yet to purchase any soybean cargo from the current harvest.

Cocoa grower price hikes signal supply normalisation

Cocoa futures in New York have slumped to a 1½-year low, down 9% on the week to trade near USD 6,300 per metric ton. The decline has been driven by speculation that higher farm-gate prices in Ghana and Ivory Coast will encourage sales of previously held-back stocks while also boosting future crop supplies. In recent years, low payments to growers in Ivory Coast — combined with adverse weather — were key reasons behind the sharp rally, as higher global prices failed to translate into increased production. That outlook is now shifting, and weather permitting, the prospect of stronger supply points to prices heading lower, though not all the way back to pre-spike levels around USD 2,600 per ton.