The contrast is striking. The seven energy majors shown in the table - ExxonMobil, Equinor, ConocoPhillips, Shell, TotalEnergies, Chevron and BP - have delivered an average year-over-year return of 38.5%, compared with 18% for the Magnificent Seven technology stocks. The performance has been particular strong so far this year with all seven energy stocks having gained at least 25%, led by Equinor at 71%, while performance among the Magnificent Seven ranges from Apple’s 19.6% rise to Tesla’s 20.8% decline.

Please note, that these are simple equal-weight calculations, not formal index returns, and that past performance is not indicative of future results.

The divergence does not mean the AI story is failing. Technology earnings remain formidable, but the cost of maintaining that growth is escalating rapidly. Meta’s second-quarter revenue rose 28% to USD 60.8 billion, yet capital expenditure reached USD 31.1 billion and free cash flow fell to just USD 784 million. The company now expects full-year capital spending of USD 130–145 billion.

Amazon offers a similar illustration. AWS operating income jumped to USD 16.6 billion from USD 10.2 billion a year earlier, but trailing 12-month free cash flow swung to an outflow of USD 7.6 billion as purchases of property and equipment increased by USD 66.1 billion, primarily reflecting investment in AI infrastructure.

The hyperscalers can finance these programmes, but investors are increasingly focused on the timing and scale of the eventual returns. Much of today’s spending must be committed before future AI demand, utilisation rates and pricing power can be known with confidence.

For the Energy Seven, the economics are almost the reverse. Higher commodity prices immediately lift revenue and cash flow from producing, processing and infrastructure assets already in operation. Years of restrained investment have limited spare capacity, while wars, sanctions and disrupted shipping routes have reduced the availability of crude oil, refined products and natural gas.

The consequences are already visible in earnings. ExxonMobil reported second-quarter earnings of USD 14.5 billion, more than double the USD 7.1 billion earned a year earlier. Cash flow from operations reached USD 23.6 billion and free cash flow USD 17.2 billion, supported by higher prices, stronger margins and record second-quarter diesel production. Chevron earned USD 12.1 billion, achieved a 21% return on capital employed and reported record US production and refinery throughput.

Equinor has been a particularly clear beneficiary of Europe’s scramble for secure energy. Its second-quarter adjusted operating income reached USD 11.5 billion, while net operating income more than doubled from a year earlier. The company realised USD 15.8 per MMBtu for European gas and USD 97.9 per barrel for liquids, with strong crude trading and refining performance providing additional support.

Refining assets have become another major source of exceptional profits. The US 3-2-1 crack spread - the theoretical margin from converting three barrels of crude into two barrels of gasoline and one barrel of distillate - is trading near USD 63 per barrel, compared with around USD 25 per barrel this time last year. That implies a remarkable margin before operating and other costs for refiners able to maintain high utilisation.

Conditions are even tighter in Europe, where diesel has risen above USD 200 per barrel, more than USD 105 above Brent and well above the USD 28 per barrel at which the spread traded this time last year. The premium reflects disrupted supply from Russia and Middle East refiners as well as limited regional refining capacity and Europe’s continued dependence on imported crude and products. Companies combining upstream production, trading operations and refining assets are therefore benefiting at several stages of the value chain.

European natural gas provides an equally dramatic example. EU gas is trading near USD 142 per barrel of oil equivalent, more than USD 45 above Brent and around eight times the prevailing US natural gas price. Europe’s shortage of indigenous supply and dependence on seaborne LNG, increasingly sourced from the US as Middle Eastern supplies remain close to offline, have created a substantial regional premium, handing a windfall to suppliers such as Equinor.

The performance gap therefore reflects more than a temporary rotation from technology into traditional energy. The Magnificent Seven are spending vast sums today to support earnings expected tomorrow. The Energy Seven are harvesting exceptional cash flow today from scarcity, elevated prices and infrastructure that already exists.

AI remains a powerful structural growth theme. However, its expanding requirement for electricity, natural gas, backup generation and grid infrastructure means some of its most immediate profits are accruing not only to those developing the technology, but also to those supplying the molecules and electrons needed to run it.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Over the past five years, the Spot Index has gained 25.5%, while the Total Return Index has risen 71.6%. By contrast, during the previous five-year period, from 2016 to 2021, the Spot Index returned 65.2%, while the Total Return Index fell 3.5%. This period was characterized by ample supply, further reinforced by the sharp, short-term drop in demand during the Covid pandemic.

These figures highlight how market conditions - particularly whether supply is tight or abundant - can significantly affect investor returns. Please note that past performance is not indicative of future results.

The gap reflects futures-curve structure. Commodity indices such as BCOM gain exposure through futures contracts that are periodically rolled into later maturities. When nearby contracts trade above deferred contracts, the roll can generate a positive return by selling an expiring contract at a higher price than the next contract being bought. In contango, the opposite applies.

Energy delivers the strongest tailwind

The effect is most pronounced across energy, where the one-year implied roll yield has risen sharply during the past six months, with Brent and WTI currently offering positive carry of around 19% and 21%, respectively. Refined products are even stronger, with gasoil, ULSD (diesel) and RBOB gasoline showing implied roll yields above 20% and, in some cases, close to 30%.

So far this year, these conditions have helped the BCOM Energy Index - which includes natural gas, down 20% year to date - deliver a total realised return of 75.8%, while the underlying spot index has gained “only” 51.3%.

The steep backwardation reflects tight physical energy markets. Disruption to Middle East and Russian supply and shipping, low product inventories and exceptionally strong refinery margins have increased the premium for prompt supply relative to barrels available further into the future.

This creates a powerful combination for investors: a long position can benefit from both rising spot prices and positive carry as exposure is rolled along the curve.

Why backwardation can encourage buying on weakness

A steeply backwardated curve generally signals that consumers are willing to pay a premium for immediate delivery, reflecting low inventories, supply uncertainty or strong near-term demand.

Provided that tightness persists, time works in favour of long positions through positive carry. A correction caused by macroeconomic factors, profit-taking or improved risk sentiment may therefore be viewed as a buying opportunity if the physical market remains tight and the curve stays backwardated.

Contango creates the opposite dynamic. Investors rolling long positions must repeatedly move into more expensive contracts, allowing negative carry to erode returns unless spot prices rise enough to compensate.

Curve structure can therefore provide important confirmation - or a warning - alongside the fundamental and technical outlook.

Metals remain structurally different

Not all commodity sectors currently offer positive carry, with precious and industrial metals mostly remain in contango, although zinc is a notable exception. This does not automatically signal weak fundamentals. Metals typically trade in contango because forward prices incorporate financing, storage and other carrying costs. With USD funding costs still elevated, with the 12-month rate around 4.2%, gold, silver and several industrial metals face a higher hurdle before moving into backwardation.

Zinc’s positive roll yield is therefore particularly noteworthy, reflecting the supply-side tightness supporting the metal. Copper, by contrast, remains in modest contango despite prices near record levels, illustrating why curve structure must be interpreted differently across sectors.

Agriculture presents a mixed picture, with some markets moving towards stronger backwardation while others remain in contango depending on inventories, harvest and weather expectations and immediate supply availability.

Carry has become an important part of the commodity story

Investors focusing exclusively on spot-price performance risk overlooking an increasingly important component of commodity returns.

The trailing difference between BCOM Total Return and Spot performance points to a substantial contribution from rolling futures exposure. The BCOM gross roll yield - measured as the 12-month return difference between the Total Return and Spot indices - has risen to around 8.8 percentage points, close to its strongest level in five years. However, as the chart shows, this return has been driven exclusively by strength in energy, raising the possibility of lower carry once the energy supply situation normalises. At the same time, emerging signs of tightness across key agricultural commodities, driven by war and weather, have not yet translated into meaningful backwardation, as seen during the 2022–2024 period following the beginning of Russia’s war in Ukraine.

Current futures curves still indicate positive aggregate carry, although at a more moderate pace than the exceptional contribution realised over the past year. Based on current BCOM target weights and one-year implied roll yields across its 25 constituent commodities, the weighted implied roll yield is around 3.3%.

The distinction matters: 8.8 percentage points describes the favourable curve conditions experienced over the past year, while 3.3% is a snapshot of currently implied carry, not a forecast of future realised returns.

Overall, commodity markets are being supported by supply constraints, rising spot prices and a futures-curve structure that continues to reward long exposure. As long as physical tightness persists - particularly across energy - backwardation provides an additional tailwind supporting the case for buying corrections rather than automatically treating them as the start of a broader reversal.

A meaningful flattening of these curves, or a shift back towards contango, would instead warn that physical tightness is easing. Watching the shape of the curve may therefore be almost as important as watching the price itself.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The COT update on forex covering the week to 25 August captured the aftermath of the US Treasury’s bond buyback announcement, which initially weakened the dollar before some buying returned later in the reporting period. Overall, the Bloomberg Dollar Spot Index ended the reporting week down around 0.8%, before fully reversing the buyback-driven decline by last Friday following Kevin Warsh’s hawkish speech at Jackson Hole.

Against this backdrop, the initial reaction was unsurprisingly one of dollar-long liquidation, with speculators turning net buyers of most of the eight IMM currency futures tracked in this report. The main exception was the Japanese yen. Overall, the aggregate speculative dollar long was cut by USD 8.3 billion to USD 27.6 billion, extending a sharp reversal from the record long of around USD 50 billion reached just one month earlier.

At the individual currency level, the euro short was cut by 38% after speculators bought a net 22.7k contracts, equivalent to USD 3.3 billion, leaving the net short at USD 5.3 billion. The Canadian dollar saw its net short reduced by 23%, or USD 2.7 billion, following net buying of 36.6k contracts. The Swiss franc and New Zealand dollar also attracted sizeable short covering, each seeing their respective dollar-equivalent shorts reduced by around USD 1.1 billion.

Sterling and the Australian dollar also saw modest net buying, although both remained firmly net short, while the Mexican peso continued to stand out as the only currency among the eight carrying a speculative net long against the dollar. Its relative strength continues to be supported by favourable rate differentials - the same dynamic, but in reverse, that continues to weigh on the Japanese yen.

Going against the broader trend, the yen saw net selling for a second consecutive week, with speculators selling 10.4k contracts and lifting the net short to 63.3k contracts, or around USD 5 billion. The divergence highlights the continued importance of relative rate expectations, with the still-wide US-Japan yield differential limiting the yen’s ability to benefit from the broader bout of dollar weakness.

Commodities

In commodities, the latest reporting week to 25 August covered the period following the surprise US Treasury bond buyback announcement, which triggered a rush into hard assets, particularly precious metals, while the accompanying dollar weakness provided broader support across the commodity complex. It was also a week in which the geopolitical temperature rose in and around the Black Sea region while a temporary easing in the Middle East contributed to an increase in crude flows through the Strait of Hormuz and a partial unwinding of the oil market’s geopolitical risk premium.

During the week, the Bloomberg Commodity Index rose by 1.1%, with strong gains across agriculture excluding livestock and, not least, precious metals, while industrial metals also advanced. These gains more than offset losses across the energy sector. Speculators responded by cutting length in Brent crude, soybean oil and livestock, while most other markets saw net buying. Once again, the strongest appetite was concentrated in grains and softs, a sector that in a matter of weeks has moved from being relatively under-owned to carrying an increasingly sizeable speculative long.

Elsewhere, the positioning response to strong gains across the investment metals was relatively muted. Gold rose 6.2% during the reporting week, while the managed-money net long increased by just 4% to 151.3k contracts, leaving it close to its one-year high. Silver and platinum saw larger percentage increases albeit from considerably smaller starting positions. This suggests that the strong price response to the Treasury announcement was not accompanied by an equally aggressive build-up in futures positioning, potentially pointing to demand coming from other sources as well.

On Friday, gold led the precious metals sector sharply lower following Kevin Warsh’s hawkish Jackson Hole speech on Friday, in which he pledged to fight inflation, lifting expectations that the Fed could raise rates before year-end. The weakness extended into today’s session after bullion closed back below its 200-day moving average on Friday, currently at USD 4,528, forcing traders to reassess the short-term technical outlook. The next key support is around USD 4,328, the 50% retracement of the August rally. Focus on the dollar and bond yields considering the longer-term fiscal challenge posed by US debt at around USD 40 trillion has not disappeared.

Agriculture: Across the ten major grain and soft commodity futures tracked in this report, the combined managed-money net long has now in the past two weeks surged by 546k contracts, the fastest pace on record, with the total rising above 1.1 million contracts, the highest in more than four years and representing a nominal exposure of more than USD 40 billion. The speed of the turnaround has been particularly striking, with the combined position having been close to neutral only a few months ago.

The buying was led by corn, where funds added a net 126k contracts to lift the net long to 376.5k contracts, the highest in more than four years. Soybeans also attracted sizeable demand, with the net long rising by 46.6k contracts to 198.3k, while sugar saw another 55.7k contracts of net buying, lifting the position to a fresh two-year high of 207.1k contracts. Cotton also reached a two-year high at 95.8k contracts, while the Kansas City wheat net long rose to 44.1k contracts, a four-year high.

One notable exception was CBOT wheat, where speculators, despite some short covering, still held a net short position of more than 100,000 contracts by last Tuesday. This helps explain why prices jumped more than 11% in the days that followed, as short sellers retreated on news that Russian exports had slowed sharply and disruptions to Ukrainian shipments increasingly threatened not only current exports but also future planting. The fundamental backdrop has therefore become considerably less comfortable for remaining wheat shorts.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close, covering positions held as of the previous Tuesday. The reports break down open interest in futures markets into different categories of market participants, depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap Dealers, Managed Money, and Other Reportables
Financials: Dealer/Intermediary, Asset Manager/Institutional, Leveraged Funds, and Other Reportables
Forex: A broader breakdown between commercial and non-commercial participants, with the latter generally viewed as speculators

The main reasons we focus primarily on the behaviour of speculators, such as hedge funds and trend-following CTAs, are:

• They are more likely to have tight stops and no underlying physical exposure that needs to be hedged

• This makes them more reactive to changes in fundamental or technical price developments

• Their positioning provides insight into major trends, while extreme positions can also help identify when a reversal or correction may be looming

It is worth noting that this group tends to anticipate, accelerate and amplify price moves that have often already been set in motion by fundamentals. As followers of momentum, these traders typically buy into strength and sell into weakness. As a result, they are often found holding their largest long exposure near the peak of a cycle or their largest short exposure ahead of a trough in the market. For that reason, positioning extremes can be useful contrarian indicators, but rarely in isolation: timing still depends on a fundamental or technical catalyst that changes the prevailing trend.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Weather, war, fiscal debt concerns and a softer dollar have combined to support another week of broad-based commodity gains, strengthening the impression that the rally is no longer being driven by a handful of isolated supply stories. The Bloomberg Commodity Total Return Index rose around 3.3% this week, lifting its year-to-date return above 30%, while the 12-month gain has reached around 44%. All major sectors except industrial metals traded higher, while at the individual commodity level, platinum, silver, crude oil, diesel and EU gas led the gains.

Earlier commodity rallies were often dominated by one sector, most recently precious metals followed by energy, but the current advance increasingly reflects several independent drivers occurring at the same time. Physical supply constraints, geopolitical fragmentation, weather volatility and concerns about fiscal sustainability are supporting different parts of the commodity complex for different reasons.

Another notable feature is the performance gap between commodity spot prices and total returns. The BCOM Spot Index reflects movements in underlying commodity prices trades up 23% year-to-date, while the BCOMTR also incorporates futures roll returns and the return earned on collateral has gained the mentioned 30.5%. In markets characterised by backwardation, where nearby futures trade above deferred contracts, investors can benefit from positive roll yield as positions are rolled forward.

This helps explain why total commodity returns have been particularly strong. It also underlines an important characteristic of the current environment: tight physical conditions are not only lifting prices but, in several markets, creating curve structures that can enhance returns for futures-based investors or ETFs that track the performance of these futures.

Agriculture joins the scarcity trade

Agriculture has become an increasingly important part of the rally, with soft commodities leading this week’s gains while grains have also strengthened. Here, the combination of weather and war is beginning to challenge what had previously been a relatively comfortable global supply outlook.

The weather story centres increasingly on El Niño. The developing event is expected to be unusually strong, raising the risk of disruptive weather patterns across several major agricultural producing regions. Tropical crops are particularly exposed, with coffee production in Southeast Asia, cocoa in West Africa and sugar production across parts of Asia and Brazil all vulnerable to shifts in rainfall and temperature.

The impact is already visible in prices. Sugar has extended a powerful rebound amid concerns about production prospects in India and Thailand, while cocoa and coffee have also strengthened as traders reassess supply risks. The UN Food and Agriculture Organization’s Food Price Index rose in July to its highest level since January 2023, with cereal prices up 3.4% during the month and sugar rising 5.6%.

The concern extends beyond crop yields. Agriculture is highly energy intensive, and the Middle East conflict has raised costs for diesel, fertiliser, transportation and irrigation. The FAO has warned that the combination of war, expensive agricultural inputs and El Niño could produce another bout of global food inflation later this year.

Grains face a different but equally important source of uncertainty. Escalating attacks around the Black Sea are disrupting one of the world’s most important agricultural export corridors for wheat and sunflower oil. Ukraine recently cut its 2026/27 grain export forecast by as much as 12% following Russian attacks on its seaports, while disruption has also affected Russian export infrastructure.

In addition, Chicago corn futures have risen to an 18-month high after an industry field tour across the US Midwest suggested the corn crop is smaller than previously expected, raising concerns that yield potential may be more limited than forecast. At the same time, the tit-for-tat attacks by Russia and Ukraine on ports and vessels may ultimately force major buyers to seek alternative suppliers, potentially boosting demand and prices in other exporting regions.

The risk is therefore increasingly two-sided: weather threatens production while geopolitical disruption threatens the ability to move available crops to consumers. With energy and fertiliser costs already elevated, the margin for absorbing additional supply shocks is becoming smaller.

Bond market unease adds another dimension

The week’s other major development came outside the commodity markets but may ultimately prove equally important for the hard-asset story. The US Treasury surprised markets by announcing that it would at least double the size of liquidity-support buybacks for longer-dated government bonds, increasing purchases of 10- to 30-year securities to at least USD 4 billion per operation. The announcement came after 30-year Treasury yields had climbed to 5.34%, their highest level since 2007.

Initially, the intervention worked. Long-dated bonds rallied sharply and the yield curve bull-flattened as 30-year yields fell. The dollar weakened and hard assets received another boost.

More interesting, however, was what happened next. The rally quickly faded, with 30-year yields returning towards 5.25% despite Treasury Secretary Scott Bessent subsequently stressing that the administration has a “big toolkit” available to address borrowing costs. The expanded purchases remain modest relative to a Treasury market of more than USD 32 trillion, while total US government debt has now crossed USD 40 trillion.

The Financial Times captured the sceptical market response with one investor describing the initiative as a “band-aid on a bullet hole”. The underlying concern is that liquidity operations can address market functioning but do little by themselves to resolve persistent fiscal deficits, rising interest expenditure and the growing supply of government debt.

For commodities, this debate matters because it challenges one of the traditional mechanisms through which commodity rallies eventually extinguish themselves. Normally, higher commodity prices lift inflation, pushing interest rates and real yields higher, strengthening the currency and eventually slowing demand.

The question is whether large government debt burdens make that adjustment increasingly uncomfortable. If policymakers attempt to contain long-term borrowing costs while inflation remains elevated, investors may increasingly seek protection in assets whose supply cannot easily be expanded.

This does not mean monetary or fiscal policy has entered a new regime, but the market reaction this week, especially the strong rally seen across the investment metals and cryptos, suggests investors are at least asking the question. The renewed weakness in the dollar, down 1% on the week but still within the range seen during the past year, has added another tailwind, given that most internationally traded commodities are priced in US dollars.

Different commodities, common denominator

Energy remains an obvious source of physical stress as the conflict with Iran continues to disrupt Middle Eastern flows and keep refined-product markets exceptionally tight. Precious metals, meanwhile, continue to attract demand amid fiscal concerns and dollar weakness. Both themes have been covered extensively in our recent updates: When bond markets need support, hard assets start to look harder, Calm crude, tightening diesel: the real oil market stress is downstream, Copper versus gold: what an old macro signal is telling us now, and Gold holds firm as rate hike risks fade despite elevated bond yields.

What is more notable this week is how those forces are spreading across the broader commodity complex. Agriculture is responding to weather, war and higher input costs. Precious metals are responding increasingly to fiscal and currency concerns. Energy remains supported by geopolitical disruption and constrained product availability, while industrial metals continue to face longer-term supply challenges despite some near-term relief.

Copper provides a useful reminder that the story is not universally bullish. London Metal Exchange inventories are heading for their largest weekly increase since 2020 as traders deliver metal against elevated prices following months of tightness. The response demonstrates how higher prices can attract supply and eventually ease scarcity. Prices nevertheless rallied once again ahead of the weekend after China, the world’s top consumer of the metal, introduced a new dose of fiscal support for the economy during one of its weakest periods in years driven by sluggish domestic demand and private spending. Measures that may support demand for commodities, including copper.

Higher prices can destroy demand, encourage substitution and accelerate new supply. A meaningful de-escalation in the Middle East or Black Sea could remove geopolitical risk premiums from energy and grains. El Niño-related concerns may ultimately prove less damaging than currently feared, while a credible US fiscal consolidation programme could reduce long-term yields, stabilise the dollar and weaken demand for hard assets.

Equally, a sharp global economic slowdown would challenge industrial commodities and energy, while persistent inflation could force central banks to maintain restrictive monetary policy for longer. Higher real yields and renewed dollar strength would be particularly important headwinds for precious metals and potentially the wider commodity complex.

For now, however, the defining feature remains breadth. The commodity rally is increasingly being supported by several independent forms of scarcity occurring simultaneously: constrained physical supply, geopolitical disruption, weather uncertainty and growing concern about the purchasing power of financial assets.

That does not guarantee prices will continue higher at the recent pace, and after a 30% year-to-date total return, the risk of corrections and profit-taking has clearly increased. But compared with earlier in the year, when performance depended heavily on a few individual markets, the current rally has developed a much broader foundation.

In a world where weather, war and debt are increasingly challenging assumptions about abundant supply and stable purchasing power, we believe commodities are once again demonstrating their distinct role within diversified portfolios, and we maintain our long-held bullish view on the sector, with some of the risks to this view mentioned above.

This reflects a market perspective, not a recommendation. Consider independent advice before making any investment decisions.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The rally in gold took prices back to the key 200-day moving average around USD 4,511, before extending to USD 4,526, its highest level since early June, where some profit-taking emerged. Silver pushed above USD 67, while platinum moved closer to USD 1,800. The immediate catalyst was clear, but the broader question is what the Treasury’s action signals about the future direction of US financial policy.

Size matters less than the signal

From 9 September, the Treasury will at least double the maximum size of liquidity-support buybacks in the 10–20 and 20–30-year maturity sectors from USD 2 billion to USD 4 billion per operation. The Treasury has framed the move as an effort to improve liquidity conditions in longer-dated securities. Even so, the scale remains extremely small relative to the overall Treasury market and a federal debt stock now exceeding USD 40 trillion.

In other words, this is not quantitative easing and should not be interpreted as such. The Treasury will continue issuing debt to fund these operations, and the buybacks are not expected to materially reduce overall privately held borrowing needs.

The signal, however, may matter far more than the size. The 30-year Treasury yield had climbed to 5.34%, its highest level since 2007, before the announcement helped push it roughly ten basis points lower. Markets may therefore increasingly interpret the move as evidence that policymakers are becoming uncomfortable with the economic and financial consequences of a disorderly rise in long-term borrowing costs.

A developing policy asymmetry

If Treasury actions succeed in containing long-term yields, the resulting decline in nominal and potentially real rates reduces the opportunity cost of holding non-interest-bearing assets such as gold. Easier financial conditions could also weigh further on the dollar, providing an additional tailwind for precious metals.

However, gold may also benefit if the relief in bond markets proves temporary. JPMorgan strategists have warned that buybacks address liquidity symptoms rather than the underlying drivers of pressure: persistent fiscal deficits, rising debt issuance, and an expanding supply of government securities. Without meaningful fiscal consolidation, attempts to stabilise market functioning could ultimately undermine confidence and push term premiums and long-term yields higher again.

This creates an important distinction for gold investors. The key question is no longer simply whether yields rise or fall, but why they are moving. Rising yields driven by stronger growth and higher real returns would typically be negative for gold. But rising yields driven by concerns over fiscal sustainability, inflation risk, or sovereign balance sheet stress can have the opposite effect, increasing demand for hard assets as a hedge against weakening confidence in fiat currency systems.

The dollar may become the crucial transmission mechanism

This is where Wednesday’s dollar reaction becomes particularly important. The dollar has traditionally benefited from higher US yields, especially when those yields reflect strong real returns. But if rising yields increasingly reflect fiscal and currency risk premia, that relationship may weaken.

My colleague John J Hardy, who covers FX markets, noted in today’s update: “This is a straightforward USD-bearish development and may spark a significant further decline in the US dollar. The most critical next step is how the market reads this move for US Treasuries. One argument is that the buyback operation is so insignificant that sellers not wanting exposure to Treasuries or the US dollar will flush holdings and overwhelm what the Treasury is doing here.”

At the same time, measures aimed at preventing Treasury market stress could encourage investors to anticipate a more accommodative financial backdrop. Treasury buybacks, alongside discussions about expanding liquidity facilities that allow foreign reserve managers to raise dollars against Treasury holdings rather than becoming forced sellers, all point towards a more active approach to maintaining market stability.

This is not yield curve control, nor is it quantitative easing. Nevertheless, investors may begin to perceive an emerging policy asymmetry in which excessively high long-term yields are increasingly likely to trigger an official response. For a country carrying more than USD 40 trillion in federal debt, the incentive to prevent borrowing costs from becoming destabilising is obvious. The potential trade-off is that stabilising the bond market may shift more of the adjustment burden onto the currency.

A sustained period of dollar weakness would be particularly supportive for precious metals. It would reduce their cost for non-dollar investors and could reinforce an already established trend toward greater diversification among global reserve managers.

Gold as the monetary metal

The broader backdrop therefore remains supportive for hard assets, but gold stands apart from the rest of the commodity complex. Copper, silver, and platinum remain exposed to industrial demand and would eventually face demand destruction if prices rise sufficiently. Gold is different. Its demand is overwhelmingly monetary and investment-driven, meaning higher prices can themselves attract additional demand when they reflect rising concerns about currencies, sovereign debt, or geopolitical stability.

This helps explain why gold remains, in our view, the clearest expression of current fiscal and monetary uncertainty. Silver should benefit if investment demand broadens into a more general precious-metals allocation, while platinum offers a combination of supply constraints and relatively subdued investor positioning. However, both remain more exposed to industrial cycles, making them less direct expressions of the sovereign debt and currency theme.

What could challenge the outlook?

The supportive case is not without risks. Markets may simply be reading too much into what remains a relatively small Treasury liquidity operation, leaving the recent moves in yields, the dollar and precious metals vulnerable to reversal. A renewed rise in real yields driven by stronger growth, persistent inflation or a more hawkish Federal Reserve would raise gold’s opportunity cost and could revive demand for the dollar.

Technical and positioning risks also matter after gold’s rapid rebound. Failure to establish a sustained break above the 200-day moving average could trigger profit-taking, while silver and platinum carry the additional risk that weaker global growth and industrial demand offset some of the support from increased investment demand. Longer term, credible US fiscal consolidation would also weaken part of the hard-asset argument by reducing concerns about debt sustainability and the currency.

The immediate technical test for gold is now the 200-day moving average around USD 4,511. A sustained break above this level would strengthen the recovery from last year’s record high, with the next technical levels seen at the 0.382 and 0.500 Fibonacci retracements of the February–June decline at USD 4,574 and USD 4,770 respectively.

If investors increasingly conclude that heavily indebted governments will prioritise financial stability and manageable borrowing costs while fiscal consolidation remains elusive, demand for assets outside the traditional fiat system is unlikely to fade.

And if that process also produces a weaker dollar, the case for gold - and precious metals more broadly - becomes increasingly difficult to ignore.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Oil continues to gyrate sharply as the war of words between Washington and Tehran leaves no clear path towards reopening the Strait of Hormuz. Brent is trading around USD 90 per barrel, but recent price action has been characterised by rapid swings as traders react to every diplomatic headline. Iran continues to insist that its conditions must be met before the Strait reopens, while Washington has introduced demands of its own, leaving negotiations effectively stuck.

The volatility partly reflects the extraordinary uncertainty surrounding the timing and consequences of any reopening. Initially, restored shipping would undoubtedly be viewed as bearish. Crude exports could increase, some shut-in Gulf production could restart, logistical bottlenecks would ease and a sizeable geopolitical risk premium would disappear.

However, that is only one side of the story. Nearly six months of disruption have left the global oil system with much thinner buffers than when the conflict began.

The IEA estimates that observed global oil inventories have fallen by around 410 million barrels since the start of the war, equivalent to an average draw of 2.7 million barrels per day. Stocks fell another 69 million barrels in July, while the agency now expects the global oil balance to remain in deficit by around 1.8 million barrels per day during the third quarter.

Emergency stock releases have helped bridge the gap, but these barrels represent supply borrowed from the future rather than newly created supply. Strategic inventories will eventually need rebuilding, meaning an eventual return of Gulf barrels will not necessarily translate into an immediate or sustained surplus.

Why is crude not higher?

Given the scale and duration of the disruption, the more interesting question may be why Brent continues to trade below USD 100. Demand destruction provides much of the answer.

The IEA has lowered its 2026 world oil demand forecast again and now expects consumption to decline by 1.6 million barrels per day this year. Demand contracted by an estimated 4.9 million barrels per day year-on-year during the second quarter and is expected to remain down 2.8 million barrels per day in the third. High fuel prices, disrupted supply chains and reduced product availability are all weighing on consumption.

China has played an especially important balancing role. EIA data show Chinese crude imports averaged just 8.1 million barrels per day during the second quarter, down 32% from the first, while imports remained sharply below year-earlier levels in July. Reduced demand from the world’s largest crude importer has absorbed a meaningful part of the Gulf supply shock and helped prevent prices from rising further.

The market is also forward-looking. Traders continue to price the probability that Hormuz eventually reopens and Gulf production recovers. The EIA assumes flows remain severely constrained through August before gradually improving from September, although it expects trade and production patterns to take until early 2027 to approach their pre-conflict configuration. Its latest forecast sees Brent averaging around USD 85 in the third quarter, falling towards USD 78 in the fourth quarter and USD 69 in 2027 as production recovers and inventories eventually rebuild.

This expected future normalisation acts as a ceiling on prompt prices even while today’s physical balance remains exceptionally tight.

The real squeeze is in refined products

The strongest signal of tightness is arguably no longer crude itself but refined products, particularly middle distillates. Diesel, jet fuel and heating oil markets remain squeezed by disruptions in two critical refining regions. Middle Eastern crude and product exports remain constrained, while Ukrainian attacks continue to restrict Russian refinery operations.

The Gulf had developed into one of the world’s most important export-oriented refining hubs before the war, exporting around 3.3 million barrels per day of refined products in 2025. The region is particularly important for diesel and jet fuel. Many of its sophisticated refineries are designed around medium and sour crude grades which, combined with complex upgrading capacity, are well suited to producing middle distillates. Medium-gravity crude naturally produces a higher proportion of diesel and kerosene than very light crude, making the loss of these barrels particularly difficult to replace.

The latest IEA report underlines the scale of the problem. Global refinery crude throughputs reached 80.9 million barrels per day in July but remained almost 5 million barrels per day below year-earlier levels. Diesel exports from Russia, the Middle East and Asia were down 1.3 million barrels per day year-on-year, equivalent to around 20% of global seaborne diesel trade, while jet fuel exports from the same regions fell by roughly 670,000 barrels per day, or 34% of global trade.

The accompanying charts tell the story clearly: distillate cracks have surged well above gasoline margins across the US, Europe and Asia, while the NYMEX 3-2-1 crack has climbed to exceptionally elevated levels.

For refiners that can secure crude and maintain high utilisation, the economics are therefore extraordinary. Marathon Petroleum reported second-quarter refining and marketing EBITDA of USD 6.7 billion versus USD 1.9 billion a year earlier, with its refining margin more than doubling to USD 36.33 per barrel. Major refiners including Sinopec, Saudi Aramco, ExxonMobil, Marathon Petroleum and Valero are obvious beneficiaries, with Marathon and Valero shares having roughly doubled year-to-date as investors price the improvement in refining economics.

Backwardation delivers another windfall

Another often overlooked feature of this year’s energy rally has been the return generated through the futures curve, where persistent backwardation has significantly boosted performance for long positions. In a backwardated market, near-term contracts trade at a premium to later-dated ones, meaning that as positions are rolled forward investors are effectively selling higher-priced expiring contracts and buying cheaper deferred ones. This creates a positive roll yield that adds to spot price gains, amplifying total returns even in periods when outright price moves are relatively modest.

The accompanying Bloomberg/Saxo data show Brent gaining 46.6% on the first futures contract while delivering a total return of 75.7%. WTI shows an almost identical divergence, with a 45.5% prompt-month gain translating into a 75.4% total return. The difference is even more dramatic in distillates, with gasoil producing a 154.8% total return against a 98.4% gain in the first future, while ULSD has returned 140.4% versus a 100% prompt-contract advance.

Deep backwardation has therefore provided long-only investors with substantial positive roll yield on top of the directional price gain. Put differently, the shortage is being expressed not only through higher prices but also through the increasingly expensive premium attached to immediately available barrels.

Where next?

An eventual reopening of Hormuz would almost certainly trigger another sharp downward adjustment as traders price returning Gulf exports. But the subsequent move may prove more complicated.

Inventories have been heavily depleted, strategic reserves have been drawn down, Gulf production remains well below normal and the refining system has lost capacity precisely where the market needs it most. The IEA itself expects inventories to remain under pressure before the balance moves back towards surplus later this year.

That leaves crude caught between two powerful forces: expectations of future supply normalisation on one side and an increasingly depleted physical buffer on the other. Until the Strait actually reopens and production visibly recovers, volatility looks set to remain a defining feature - while distillates and the shape of the futures curve may continue to provide the clearest evidence of just how tight the underlying energy market has become.

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This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The most notable development across precious metals is not the strength of last week’s rebound, but the sell-off that failed to materialise beforehand when gold repeatedly resisted selling attempts below USD 4,000, while silver found buyers below USD 57. This resilience came despite several headwinds that had weighed heavily on the sector during the second quarter, including elevated bond yields, renewed concerns about US rate hikes driven by rising inflation amid surging fuel costs, a stronger dollar and subdued investment demand from Western asset managers.

Gold had fallen sharply from its January record above USD 5,500, while second-quarter losses were the largest since 2013. Yet the inability of sellers to force a sustained break below USD 4,000 increasingly suggested that underlying demand remained strong enough to absorb liquidation from more rate-sensitive investors. That resilience last week drove a 7% rebound in gold, its strongest weekly gain since January, while silver climbed back above USD 65. Friday’s weak US employment report provided the latest catalyst as it reduced expectations for another near-term Federal Reserve rate hike and helped push the dollar lower.

Fed, yen intervention and jobs data change the mood

The first important catalyst was the late-July FOMC meeting. The outcome was dovish relative to what had become increasingly hawkish market expectations rather than dovish in an absolute sense.

With higher energy prices feeding inflation concerns, markets had moved towards pricing a meaningful probability of another rate increase. The Fed instead left its policy rate unchanged with three regional Fed presidents dissented in favour of tightening, underlining that inflation concerns have not disappeared. The resulting modest reduction in rate-hike expectations took some of the wind out of the dollar’s sails, providing initial support to gold and silver.

That was followed by the highly unusual US-Japan intervention episode after USDJPY surged towards a four-decade high near 164. Japanese authorities initially stepped in to support the yen, followed by intervention from the US Treasury through the New York Fed. The coordinated action briefly drove USDJPY down towards 155, adding further pressure on the dollar and providing another supportive impulse for precious metals.

Some of that impact has since faded, with USDJPY returning towards 160, highlighting the difficulty of reversing currency trends through intervention alone when underlying interest-rate differentials remain wide. Taken together, the sequence has been supportive: a less-hawkish-than-feared Fed, a weaker dollar, coordinated yen intervention, softer oil prices and finally weaker US employment data.

Western investors begin to return

Perhaps more importantly for the medium-term outlook, there are tentative signs that Western investment demand is beginning to recover. During much of the correction, central banks and Asian investors continued accumulating gold while many Western asset managers remained sellers, deterred by rising bond yields and the prospect of higher funding costs. This created an unusual divergence between strong underlying physical and official-sector demand and weak demand from the investors traditionally most sensitive to US monetary policy.

That gap may now be starting to narrow after the World Gold Council reported that global physically backed gold ETFs attracted USD 3 billion of net inflows during July, ending two consecutive months of outflows. Total holdings rose by 23 tonnes to 4,068 tonnes, with European funds driving most of the buying while North American inflows remained modest. Western investors are therefore returning, but there has not yet been a broad-based repositioning into gold, with North America still the only major region to record ETF outflows during the first half of the year.

Central banks and Asia continue to provide the foundation

While Western investment demand has fluctuated with interest-rate expectations, central-bank and Asian demand has remained an important source of underlying support. The World Gold Council reported a sharp rebound in official-sector purchases during the second quarter after an unusually weak start to the year. Although central-bank buying during the first half remained below the extraordinary pace seen during recent years, the underlying motivation for reserve diversification appears intact.

This matters because the experience of 2022–23 showed how central-bank and Asian demand can alter gold’s traditional relationship with Western financial conditions. Aggressive central-bank tightening and rising real yields failed to produce the deep and prolonged correction many Western investors had expected, partly because physical and official-sector buyers repeatedly stepped in.

A similar dynamic has helped establish a floor beneath gold during the latest correction. The question now is what happens if that structural demand is joined by a sustained return of Western portfolio flows. The combination would represent a materially stronger demand environment than the one that merely prevented gold from falling further.

Silver joins the rebound

Silver has participated in the recovery, as per usual at a somewhat faster pace given liquidity constraints but overall the outlook remains somewhat different from gold’s. The metal continues to benefit from its monetary characteristics and tends to amplify moves in gold when investment demand strengthens. At the same time, silver retains a sizeable industrial exposure, making its outlook more sensitive to global growth.

The Silver Institute expects the market to record a sixth consecutive structural deficit in 2026, while investment demand is expected to remain strong. However, industrial fabrication is forecast to decline by around 2%, partly reflecting continued thrifting and substitution in photovoltaic applications.

Silver therefore offers potentially greater upside participation should the precious-metals rally broaden, but also greater vulnerability if weaker US data develops into a more pronounced global growth slowdown.

What could still go wrong?

Despite the improving backdrop, several risks argue against becoming outright bullish just yet. The most obvious is inflation. The July Fed meeting reduced immediate tightening concerns, but three policymakers still wanted higher rates. A renewed acceleration in inflation could quickly rebuild expectations for another hike, pushing Treasury yields and the dollar higher and once again challenging investment demand for gold from rate sensitive investors.

Oil and especially fuel prices remain particularly important in this respect. Lower prices helped the precious-metals recovery last week, but the latest renewed rise following fading hopes for a US-Iran agreement serves as a reminder that the energy shock has not disappeared. A sustained oil rally could revive inflation concerns and complicate the Fed’s policy choices.

There is also no guarantee that the recent ETF inflows represent the beginning of a sustained allocation shift. July’s improvement was encouraging, but North American participation remains limited. Finally, stronger-than-expected US economic data could reverse some of the recent moves in yields, the dollar and rate expectations. The market has rapidly shifted away from expecting imminent tightening, leaving precious metals increasingly sensitive to incoming inflation and activity data.

Gold faces its next technical test

From a technical perspective, gold has, after finding support below USD 4,000, broken above recent resistance, with the former resistance area around USD 4,200 now acting as support. However, the bigger test sits around USD 4,500, where the declining 200-day moving average currently sits ahead of the 38.2% Fibonacci retracement of the January-to-June decline at USD 4,585. A sustained break above this zone would strengthen the technical outlook considerably and could open the way towards the 50% retracement near USD 4,690, followed by the 61.8% level around USD 4,860.

Conversely, a rejection at or before the USD 4,500 area would suggest that the consolidation has further to run, potentially bringing the USD 4,000–3,960 support zone back into focus. For now, the precious-metals outlook is showing signs of improving, not least underpinned by ongoing structural demand that helped prevent a deeper correction, while the macro environment has become more supportive and Western investors are showing tentative signs of returning.

That is a constructive combination, but not yet confirmation that the next sustained leg higher has begun. Gold has demonstrated where buyers are prepared to defend the market. The next test is whether they have sufficient strength to break the sequence of lower highs.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Black Sea tensions reshape export outlook

Ukraine’s main farmers’ union estimates the country has already lost about one-third of its grain export capacity through its vital Black Sea ports following repeated Russian missile and drone strikes on port infrastructure. At the same time, Ukrainian attacks have disrupted shipping through Russia’s Sea of Azov export corridor, a route that normally handles around one-quarter of Russian wheat exports.

Together, these developments have raised concerns that both of the world’s largest Black Sea exporters may struggle to move grain efficiently to global buyers just as the Northern Hemisphere harvest gathers pace. However, despite obvious comparisons with 2022, today’s market backdrop is fundamentally different.

When Russia launched its full-scale invasion in February 2022, the conflict erupted just before the Northern Hemisphere spring planting and growing season. Markets were forced to price not only the risk of severe export disruptions but also the possibility of a substantial loss of production across both Ukraine and parts of Russia. That combination of collapsing exports and uncertain crop prospects sent Paris milling wheat briefly to a record EUR 450 per tonne. This time, the market is primarily pricing logistical risk rather than production risk.

Tightening buffers and short covering amplify gains

Both Russia and Ukraine are still expected to harvest sizeable wheat crops this season, and global production remains historically high. The concern is increasingly whether those crops can reach international markets smoothly rather than whether they will be produced in the first place.

That distinction matters because export disruptions can often be mitigated over time through alternative routes, higher freight costs and logistical adjustments, whereas a poor harvest permanently removes supply from the global balance sheet.

That said, the global market is less comfortable than headline inventory numbers suggest. While global wheat stocks remain relatively large, a significant share is held in China and therefore unavailable to international buyers. Stocks held by the major exporting countries continue to tighten, while US wheat production is forecast to fall to its lowest level since 1970. This leaves importing countries with a smaller export buffer should Black Sea disruptions intensify.

France, the European Union’s largest wheat producer, is expected to harvest around 32 million tonnes this year, approximately 4% less than last season after repeated heatwaves reduced yields during the final stages of crop development. Elsewhere, developing El Niño conditions are beginning to raise concerns about moisture deficits across Australia later this year, although any weather-related impact remains highly uncertain at this stage.

Prior to the latest advance, managed money held a net short position of more than 62,000 CBOT wheat contracts, leaving the market vulnerable to a sharp short-covering squeeze once prices started to break higher. While fresh fundamental concerns provided the spark, the speed of the rally has probably been magnified by funds rushing to exit bearish positions.

In addition, the prospect of a tightening market has in the past two months more than halved the 12-month contango in the Chicago wheat futures to around 5% from above 10%, reducing the carry available to short sellers and making it more costly to maintain bearish positions. This has increased the incentive for speculative traders to cover shorts and potentially shift toward a more neutral or even long bias.

Whether this develops into a more sustained bull market will depend on what happens next in the Black Sea. If export disruptions worsen and weather problems spread to additional producing regions, prices could extend higher. However, absent a meaningful deterioration in global production prospects, today’s rally still looks fundamentally different from the extraordinary supply shock witnessed in 2022.

For now, the market is repricing logistical risk rather than anticipating another global production crisis - a distinction that should help limit upside, even as volatility remains elevated.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Following a softer-than-expected US CPI report, bullion rallied almost USD 100 to briefly reclaim the USD 4,100 level as traders sharply reduced expectations for near-term Federal Reserve tightening. However, the move quickly faded as renewed gains in crude oil prices, together with fresh US strikes against Iran, reignited concerns that higher energy costs could once again feed through into inflation, fueling the risk of tighter monetary policy. Gold subsequently slipped back towards USD 4,000, leaving the metal firmly within the broad consolidation range that has contained prices for the past several weeks.

The market’s inability to establish a clear direction highlights the conflicting forces currently influencing precious metals. Traditionally, rising oil prices create headwinds by lifting inflation expectations, supporting Treasury yields and strengthening the US dollar, thereby increasing the opportunity cost of holding non-yielding assets. That relationship remained evident earlier this week when the US two-year Treasury yield climbed to its highest level in more than a year.

However, the latest price action also suggests investors may be starting to look beyond the immediate inflationary consequences of higher energy prices. Despite Brent crude extending its advance above USD 85 a barrel, with diesel, gasoline and jet fuel trading at levels closer to USD 160 per barrel equivalent, gold has so far managed to avoid a deeper sell-off. While it is too early to conclude that the recent inverse relationship between oil and gold has broken down, the resilience around USD 4,000 indicates that investors are becoming less willing to sell aggressively into renewed inflation fears. The reason may lie in the distinction between the short- and longer-term consequences of an energy shock. While higher fuel prices initially lift inflation and rate expectations, persistently elevated energy costs also risk slowing economic growth by squeezing consumers, eroding corporate margins and weakening investment. Should those concerns begin to outweigh inflation fears, gold’s defensive qualities may once again become the dominant driver.

Fed Chair Kevin Warsh’s testimony before Congress did little to resolve that uncertainty, reiterating the Fed’s commitment to restoring price stability while offering few clues on the timing of the next policy move. As a result, precious metals remain highly sensitive to incoming inflation data and developments in energy markets.

Across the sector, silver and platinum are showing even less conviction than gold. Following sharp corrections from their respective highs, gold is currently down 7.2% year-to-date but still up 20% from a year ago. Silver has fallen 17% this year despite remaining 52% higher year-on-year, while platinum has seen the largest setback, down 20% year-to-date, although it continues to trade 15% above year-ago levels. These contrasting performances highlight gold’s stronger defensive appeal, while silver and platinum continue to be pulled between safe-haven support and concerns that a prolonged period of elevated energy prices and tighter monetary policy could eventually weaken industrial demand. Until the macro picture becomes clearer, all three metals are likely to remain rangebound, with gold continuing to outperform its more economically sensitive peers.

Positioning also reflects a market waiting for fresh direction. ETF holdings have broadly stabilised following last month’s liquidation, suggesting the aggressive selling phase has largely run its course without yet giving way to renewed investor buying. Meanwhile, continued central bank purchases provide an important structural source of demand, reinforcing our view that gold remains in a consolidation phase rather than the beginning of a new directional trend.

For now, we continue to see gold trading within a broad USD 3,950 to USD 4,200 range. A sustained break above USD 4,200 would indicate investors are beginning to look beyond inflation and focus instead on the broader economic consequences of a prolonged energy shock. Conversely, a move below USD 3,950 would suggest inflation concerns, higher bond yields and a stronger dollar have once again taken control of the narrative.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The breadth of the recovery is encouraging, but its composition remains highly selective. Rather than signalling a broad-based acceleration in global demand, the strongest gains have been concentrated in markets facing renewed supply concerns. Cocoa and coffee have surged on adverse weather worries, while diesel has jumped amid Russia’s export ban and renewed risks to supply from Middle Eastern refiners. Together with higher crude oil prices, and despite a 7% slump in US natural gas, these gains have underpinned the rebound.

Grains have also participated in the rebound following supportive reports from the US Department of Agriculture earlier in the month supported corn and wheat, while soybeans benefitted from increased sales to China and a fresh boost to soybean oil through its bio-fuel link elevated fuel prices. Meanwhile, industrial and especially precious metals are holding just above water. Both sectors remain weighed down by renewed US rate-hike fears, higher bond yields and a still-firm dollar, but signs of returning demand suggest the heavy liquidation and correction phase of recent weeks may be starting to run its course.

The removal of extended long positions during the May-to-June correction has created room for prices to respond more forcefully to fresh supply risks, but conviction remains uneven and macro headwinds have not disappeared, so for now, the picture is one of stabilization rather than renewed acceleration

Middle East flare-up tests the ceasefire

Energy markets were again forced to confront geopolitical risk after a fresh flare-up in fighting between the US and Iran once again raised fears that the ceasefire was breaking down. Brent crude rallied sharply from support in the low USD 70’s to near USD 80 as traders reacted to renewed attacks and comments from President Trump that initially appeared to cast doubt on the durability of the agreement.

However, the rally has so far lacked the conviction normally associated with a market preparing for a prolonged and severe supply disruption, instead pointing towards a bid being underpinned by wrong-footed short sellers after recent COT data showed a near record gross short position in Brent crude futures. Prices softened ahead of the weekend as Washington reiterated its commitment to finding a negotiated solution and technical-level talks with Iran continued despite the renewed hostilities. For now, traders appear to view the latest confrontation as a serious test of the ceasefire rather than its definitive collapse. Key to watch is the traffic through the Strait of Hormuz which this week slowed down with just a few large commodity-laden vessels being seen transiting the key waterway.

In its latest monthly update, the IEA warned that the recent flare-up puts the rebuilding of oil inventories at risk, especially at a time when the recovery in global oil demand is underway. Overall, the agency forecasts that global oil demand will fall by 1 million barrels per day in 2026 before rising by 1.9 million barrels per day the following year. One particularly notable observation concerned the UAE, which the IEA said managed to boost production to an all-time high of 4.1 million barrels per day last month, using its own ships to transport barrels out of the Persian Gulf. This recovery may inadvertently raise speculation about increased competition among Gulf producers, potentially keeping prices subdued once normality eventually returns to the region

Diesel sounds a louder alarm than crude

While crude oil has struggled to sustain its geopolitical premium, refined fuels are telling a more concerning story with prices holding firm or in some cases rising while crude was falling, thereby leaving a windfall for refineries as margins surge higher. In the past week, diesel has been among the strongest-performing commodities, with London gas oil and New York ULSD both posting sharp gains.

The rally reflects a tight global product market during the annual peak demand season rather than simply higher crude prices. Russia’s decision to restrict diesel exports has added another layer of pressure following repeated Ukrainian attacks on the country’s refining system. The attacks have reduced effective processing capacity at a time when seasonal demand is strong and alternative supplies are already constrained. Together with renewed instability in the Middle East which has increased concern about regional refining capacity and product exports, it is increasingly about whether sufficient refining capacity is available in the right locations to turn crude into diesel, jet fuel and gasoline.

A barrel of oil that cannot be processed, or cannot reach a refinery operating at normal capacity, offers limited relief to consumers facing tight fuel availability. Weekly reports from the EIA highlight the strain in the US market, with refined product exports hitting a record 8.7 million barrels per day in the latest reporting week, drawing down domestic inventories. Distillate stocks, including diesel, fell by 5 million barrels to a four-year low, while a 1.9 million-barrel decline in gasoline inventories pushed them to their lowest seasonal level since 2012.

The divergence between crude and refined products therefore deserves close attention. It raises the risk that energy-driven inflation pressures could remain elevated even if Brent and WTI drift back towards pre-war levels. For central banks and bond markets, the price of fuel reaching consumers may ultimately matter more than the price of the feedstock crude.

Natural gas markets are also sending mixed signals. US prices have slumped back below USD 3 per MMBtu after the EIA reported a larger-than-expected stockpile build, lifting inventories to around 6.6% above the five-year average. Additional pressure has come from Freeport’s announcement of a major maintenance turnaround at its LNG export terminal, trapping more supply within the domestic market while reducing availability to importers in Europe and Asia. In contrast, European benchmark prices have rebounded towards EUR 50 per MWh, or roughly USD 16.8 per MMBtu, as the market adjusts to tighter near-term supply conditions and a slower-than-expected recovery in Qatari exports

Gold passes another stress test

Precious metals remain caught between signs of returning demand and a renewed deterioration in the macro backdrop. Yet gold’s behaviour this week has been notable for its resilience. Considering what was thrown at bullion - surging oil and fuel prices, hawkish signals from the FOMC minutes, rising yields and traders once again entertaining the possibility of a US rate hike - gold has held up well. The metal found support ahead of USD 4,050 before rebounding as the dollar and yields subsequently softened.

The price action supports our belief that gold has moved from capitulation to consolidation. However, it does not imply that bullion is ready to resume its previous uptrend, but it suggests that the forced liquidation phase may have run its course and that sellers are finding it increasingly difficult to trigger another major downside move.

The dollar may also be showing signs of buying fatigue. Despite renewed geopolitical tension and a more hawkish rates debate, it has traded broadly unchanged so far this month. This comes at a time when speculators in the futures market has raised bullish dollar bets against eight IMM futures to a ten-year high, potentially reducing the willingness of traders to chase further strength without a fresh catalyst.

The consolidation view could still be challenged if oil and fuel prices continue to rise. A sustained energy shock would increase the risk of inflation remaining elevated for longer, potentially keeping yields high and forcing markets to price a more aggressive Federal Reserve response.

However, given the recent weakness in US jobs data, we do not believe the FOMC will automatically reach for the rate-hike button simply because energy prices rise. The Fed faces an increasingly uncomfortable trade-off between inflation risks and signs of softer labour demand, leaving incoming data critical for both the dollar and precious metals.

Weather puts soft commodities back in focus

At the top of the performance table so far this month, risk premiums across tropical commodities have continued to rebuild, with cocoa and Arabica coffee both surging on renewed weather concerns. The threat of an emerging El Niño - potentially one of the strongest in 75 years according to the US Climate Prediction Center - has intensified focus on supply risks.

Such a development could exacerbate hot and dry conditions in West Africa, posing a threat to cocoa production, while also creating challenges for coffee producers in Brazil. Heavy rains there have already delayed this year’s harvest and raised questions about expectations for a record crop.

These developments highlight how an El Niño event can have very different regional impacts, while also underscoring the risk of rising volatility. Relatively small changes in weather forecasts can trigger outsized price moves in markets that are already tightly balanced.

Recent price action reflects this instability. Cocoa swung from solid gains to a loss before rallying again, with the front-month future reaching a November high. Arabica coffee experienced a particularly volatile week, whipsawing from its biggest one-day gain in 26 years on Monday to steep declines over the next two days before staging a strong comeback on Thursday.

The key question is whether the current rallies develop into genuine physical supply concerns or remain primarily weather-premium events. For now, the scale of the gains - cocoa up more than 27% this month and Arabica coffee around 18% - suggests traders are unwilling to ignore the risk.

From capitulation to selective consolidation

The broader commodity picture is gradually improving, but the rebound remains uneven and not a synchronised reflation trade. The Bloomberg Commodity Index has recovered part of its May-to-June decline, liquidation pressure has eased and several markets are responding strongly to fresh supply risks. Yet, industrial metals remain subdued, precious metals are still navigating a difficult rates environment, and crude oil has shown surprisingly limited conviction despite renewed Middle East tensions.

Instead, leadership comes from markets where supply risks are most visible: diesel, cocoa and coffee. That suggests the current phase is best described as selective consolidation rather than the start of a new broad-based commodity bull market. The next test will be whether stabilising energy prices, softer yields and signs of dollar buying fatigue allow the recovery to broaden. Until then, supply shocks are doing most of the heavy lifting.

Finally, as I and thousands of market participants across the world prepare to leave work to enjoy their annual summer holiday, it is worth noting that this period tends to reduce liquidity, potentially increasing volatility. This comes at a particularly difficult time, when frequent commentary from the White House continues to trigger short-term market reactions that often fail to develop into sustained trends amid subsequent clarifications or counterstatements.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

In the week to 30 June, ahead of Kevin Warsh’s comments on cooling inflation and Friday’s weak US jobs report, the non-commercial USD long jumped again, rising for an eight consecutive week to USD 39.8 billion, the highest in at least ten years. Despite the DXY slipping 0.2% during the reporting week, dollar buying continued, driven primarily by aggressive EUR selling that pushed the net position back to neutral. Elsewhere, the JPY short reached a fresh two-year high of 155k contracts, equivalent to around USD 12 billion, while the short position in NZD jumped to a record high at 63k contracts, equivalent to around USD 3.6 billion. Besides JPY, the bulk of the bullish dollar view is held against CAD (USD 10.7 billion), GBP (USD 8.5 billion), and CHF (USD 6.1 billion)

SOFR short reaches another record

The leveraged fund short position in SOFR futures reached a fresh record high in the latest reporting week to 30 June, climbing to 3.12 million contracts, equivalent to a notional value of more than USD 750 billion. The short position has more than doubled over the past two months as rising energy prices and firmer inflation expectations prompted a hawkish shift in Fed expectations following the recent FOMC meeting. The latest positioning data shows leveraged funds have become increasingly aligned behind the higher-for-longer interest-rate narrative but also with positioning now at a record extreme, how the market may become more vulnerable to a short-covering reversal should the recent decline in energy prices contribute to easing inflation expectations and reduce the perceived need for further monetary tightening.

SOFR, or the Secured Overnight Financing Rate, is the benchmark rate reflecting the cost of borrowing cash overnight using US Treasuries as collateral. Because SOFR futures prices move inversely to expected short-term interest rates, a short position effectively represents a view that policy rates and funding costs will remain higher for longer or move even higher than currently anticipated.

Commodity liquidation begins to ease

In commodities, another week of weakness, albeit at a slower pace than previously, saw the Bloomberg Commodity Index decline 1%. Broad losses across the major sectors, led by precious metals and energy, were partly offset by a surging softs sector, where cocoa, coffee and sugar rallied strongly.

As mentioned, the reporting week ended ahead of Kevin Warsh’s comments on cooling inflation and Friday’s weak US jobs report, while grain traders only partly had time to respond to the broadly bullish USDA stocks and acreage reports. The latter helped arrest a month-long slide that had seen speculators rush to exit long positions.

Overall, these developments, particularly across grains and softs, helped reduce the one-sided focus on long liquidation that had pressured commodities during previous weeks. In energy, the crude long continued to deflate, not least in Brent, where managed money accounts cut the net long by 38% to a near-historic low of just 55.6k contracts, down around 87% from a March peak of 429k. With the gross short hovering near an all-time high, the long-short ratio has slumped to just 1.2 longs per short, also near a historic low. Such extremes have in the past proved unsustainable, triggering sharp bursts of position adjustment.

In precious metals, investors continued to buy into price weakness, potentially signalling emerging bottom-fishing on expectations that the capitulation phase is giving way to consolidation. Copper, meanwhile, saw selling extend into a fourth week, during which the net long has fallen 20% from a five-year high.

In agriculture, the focus was the bullish price response in wheat and corn following the USDA’s Quarterly Stocks and Planted Acreage reports, forcing hedge funds to cover recently established short positions. Renewed El Niño weather concerns also lifted soft commodities. Cocoa and Arabica coffee have rallied strongly from last month’s lows, supported by adverse weather, tightening physical supplies and renewed concerns about production in the months ahead. These developments triggered short covering in cocoa, while the coffee net long jumped 52%.

The rally accelerated on Monday, with Arabica coffee futures surging as much as 19%, the steepest one-day rise in 26 years. Expectations of a bumper crop in top producer Brazil are being tempered by poor weather that has delayed harvesting, prompting some growers to hold back sales in anticipation of higher prices. Cocoa futures, meanwhile, jumped 13% on Monday to their highest since January as persistent rains across key West African growing regions added to supply concerns, squeezing funds holding sizeable short positions

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Gold extended its rebound after a weaker-than-expected US jobs report reinforced Federal Reserve Chair Kevin Warsh’s earlier message that inflation pressures were easing. Softer payrolls prompted a rethink of the strong-dollar narrative and triggered a modest decline in bond yields, removing some of the pressure that had weighed heavily on bullion during its prolonged correction. Falling energy prices have also helped, with the one-year US inflation swap declining by around 1.4 percentage points since May to 2.1%, reducing fears that the earlier energy shock would force the Fed into a prolonged tightening cycle.

This matters because gold’s correction since January, which accelerated during the Middle East war, was driven by a particularly difficult combination: a stronger dollar, elevated real yields, renewed Fed tightening expectations amid rising inflation and softer near-term tactical and strategic investment demand. Gold’s abundant liquidity also worked against it, turning the metal into a source of cash as investors sought to raise funds and reduce risk. The recent improvement therefore represents an important change in direction, but not yet confirmation that a new uptrend has begun.

Gold moves from liquidation to base building

Gold’s current behaviour suggests a market shift from technical selling and long liquidation towards consolidation. Support below USD 4,000 has held so far, but the rebound towards USD 4,200 has met renewed selling, indicating that some investors are still using strength to reduce exposure. Such price action is typical after a deep correction and helps explain why building a durable market trough can take time.

ETF holdings continue to fall, dropping below 3,000 tonnes last week for the first time since September and underscoring the challenge posed by persistent macroeconomic headwinds. Hedge fund positioning in futures has also eased, making the market less crowded, but it has yet to show the broad-based accumulation typically associated with a sustained rally.

On the charts, the 200-day moving average near USD 4,485 represents the first major hurdle. Above that, the 38.2% retracement of the roughly USD 1,650 January-to-June correction sits near USD 4,574. A break above these levels would further improve the technical picture. Until then, the recovery is better viewed as an attempt to build a base.

The macro backdrop remains equally important. Fed funds futures continue to price a relatively restrictive policy environment despite the recent easing in inflation concerns. For gold to challenge USD 4,500 and beyond, incoming economic data will likely need to support a more decisive dovish turn in rate expectations, weighing on both bond yields and the dollar

The Fed may drive the next move, but structural demand still matters

The near-term outlook broadly fits a rangebound scenario. Moderate growth, cooling but still elevated inflation and expectations for limited further tightening could leave gold oscillating within a relatively wide range while waiting for a fresh catalyst.

On the upside, a worsening economic outlook or a clear shift towards lower interest-rate expectations that weakens the dollar could reignite momentum and lift gold. Conversely, resilient growth, rising yields and calmer markets could trigger renewed weakness, although bargain hunting and structural central bank demand may limit the depth of another correction.

Central bank behaviour remains central to the longer-term argument. Gold buying accelerated sharply after the freezing of Russian reserve assets in 2022, reflecting a desire to diversify sovereign risk rather than abandon the dollar system entirely. At the same time, broader fiscal concerns, persistent debt accumulation and the risk of gradual currency debasement continue to support demand for assets that sit outside another party’s balance sheet.

In China, real residential property prices have now fallen for four straight years, with both new and used home prices stuck in negative territory since 2022. These matters given the historic importance of property as a Chinese savings vehicle, as continued weakness have reinforced demand for alternative stores of value. Gold, silver and platinum are among the beneficiaries, particularly if confidence in property remains subdued and domestic investors continue seeking hard assets as an alternative

Silver: higher beta with unfinished technical business

Silver’s latest sell-off was arrested ahead of key support in the mid-USD 50s, with the subsequent rebound taking prices back above USD 60. The move is encouraging, but like gold, silver still has considerable work to do to repair the technical and psychological damage inflicted during the past few months.

Silver combines gold’s macro sensitivity with a tighter fundamental backdrop. Multi-year supply deficits and growing industrial demand provide structural support, but the market is much smaller and more flow-sensitive than gold. That makes silver particularly attractive to momentum-driven investors when conditions improve, while also exposing it to sharper liquidation when sentiment reverses. In that sense, silver remains a higher-beta expression of the precious metals theme.

Platinum adds a strategic hard-asset dimension

Platinum offers a somewhat different proposition. While gold remains primarily driven by macro conditions and investor demand, platinum is more directly influenced by physical balances, industrial demand and supply security. Persistent deficits, strategic stockpiling and growing recognition of platinum as a critical mineral are helping revive investor interest.

Trade flows also suggest a more fragmented market. China has imported more platinum than reported consumption alone would appear to justify, while US inventories have risen amid tariff-related shifts in trade. This points towards a broader process of regionalisation, where availability, geography and the form of metal increasingly influence pricing.

For investors, that gives platinum a distinctive role. It combines precious metal characteristics with exposure to industrial applications, strategic stockpiling and critical-mineral security. It may therefore offer complementary hard-asset exposure, although cyclical weakness in global manufacturing remains a clear risk.

Conclusion

Overall, precious metals are no longer trading with the one-way momentum seen earlier in the year, but neither has the structural hard-asset case disappeared. Gold needs help from the Fed, the dollar and yields to resume its advance, while silver and platinum need a stable gold market before their tighter fundamental backdrops can exert greater influence. For now, the sector is trying to build a floor. The next move will depend on whether that floor attracts fresh demand or merely gives existing longs another opportunity to reduce exposure.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Two developments helped improve sentiment across rate- and growth-sensitive commodities. First, Federal Reserve Chair Kevin Warsh signalled that inflation pressures had moderated alongside falling energy prices, helping calm fears that the Fed might need to tighten policy more aggressively. That message was reinforced by a weaker-than-expected US jobs report, which triggered a softer dollar and a modest decline in short-dated Treasury yields.

The combination reduced one of the strongest headwinds facing commodities in recent months: the prospect of higher funding costs amid an energy-driven inflation shock. The one-year US inflation swap, a real-time gauge of expected inflation one year ahead, has dropped from 3.5% in May to around 2.1%, signalling a sharp shift away from inflation anxiety.

Still, the week’s stabilisation should not be confused with a broad-based return to bullish conditions. Two-year Treasury yields remain well above the Fed funds target rate, suggesting markets still - incorrectly in our opinion - see a meaningful risk of another rate hike, most likely in December. Performance also remained uneven, with strength in softs, precious metals and selected refined products offset by weakness in industrial metals, led by aluminium as Gulf production ramps back up

Energy stabilises, but contango points to surplus pressure

Brent traded near unchanged on the week after returning to pre-war levels, with support emerging ahead of USD 70. The stabilisation potentially signals that the ongoing recovery in supply flows through the Strait of Hormuz is now largely priced in after weeks of sharp declines.

However, the underlying picture remains challenging. The recovery in Middle Eastern supply has outpaced expectations, with both the UAE and Saudi Arabia rapidly lifting exports towards pre-war levels. At the same time, depressed Chinese import demand has limited the market’s ability to absorb returning barrels. The resulting mini-glut helps explain both the collapse in flat crude prices and the re-emergence of prompt contango across major crude benchmarks.

That curve structure matters. Contango, where future prices trade above nearby contracts, signals reduced urgency to secure prompt barrels and improves the economics of storing crude for later sale. Its return underlines the speed with which the market has shifted from fears of immediate scarcity to concerns about near-term oversupply.

US-Iran talks continue with several issues unresolved, meaning geopolitical risk has not disappeared. Nevertheless, the immediate focus has shifted from disruption towards absorption: how quickly can the market digest returning Gulf barrels, and where will incremental demand come from?

One potential answer is inventory rebuilding. Following the initial wall of supply, attention may turn towards replenishing strategic and commercial reserves drawn down during the conflict. Such buying could lift demand beyond immediate consumption needs. However, its impact will depend heavily on China, where a sustained acceleration in imports would be needed to absorb excess barrels and support a more durable tightening of the crude market.

Tight products keep consumers waiting for relief

The weakness in crude contrasts sharply with refined products. Peak summer demand for driving, flying and cooling has kept product markets relatively tight, supporting refinery margins and limiting the pass-through from lower crude prices to consumers. Ahead of the US holiday, London gas oil and US ULSD diesel posted solid gains, while gasoline also advanced even as Brent and WTI remained subdued. The northern hemisphere summer combines peak road travel with increased aviation activity and higher electricity demand for cooling at a time when product inventories in several regions remain relatively tight. So, while crude producers are dealing with returning supply and weak prompt pricing, refiners continue to benefit from elevated margins. For consumers, it means the sharp decline in crude has yet to translate fully into equivalent relief at the pump or across transport-intensive sectors.

Precious metals attempt to establish a floor

Precious metals were among the stronger sectors during the week, with gold extending its rebound towards USD 4,200 after the weaker-than-expected US jobs report reinforced Warsh’s earlier message that inflation pressures were easing. Softer payrolls triggered a weaker dollar and a modest decline in bond yields, easing some of the pressure that had weighed heavily on bullion during its prolonged correction, potentially supporting gold in attempts to establish a foothold above USD 4,000.

The recovery began after Warsh highlighted moderating inflation risks alongside falling energy prices. A 1.4% decline since May in the one-year US inflation swap, a highly watched financial derivative that acts as a real-time gauge of where the markets thinks inflation will be exactly one year from now, has reinforced expectations that inflation concerns may continue to fade, potentially helping establish a floor under precious metals. This matters because the recent correction since January and strengthened during the Middle East war was driven by a particularly difficult combination of a stronger dollar, elevated real yields, renewed Fed tightening expectations amid an energy-related jump in inflation, and softer near-term demand conditions.

However, the technical damage remains significant. Some investors are still using rallies to reduce exposure, and gold faces several important resistance levels before a clearer path towards higher prices can emerge. The 200-day moving average near USD 4,485 represents the first major hurdle, followed by the 38.2% retracement of the 1,650 dollar January to June correction near USD 4,574. For those levels to be challenged, incoming macroeconomic data will likely need to support a more decisive bearish turn in rates, weighing on the dollar and bond yields. Until then, gold’s recovery is best viewed as an attempt to build a base rather than confirmation that a new uptrend has begun.

While gold found support below USD 4,000, silver’s latest slide was arrested ahead of key support in the mid-USD 50s, with the subsequent rebound taking it back above USD 60. Like gold, silver still has considerable work to do to repair the technical and psychological damage inflicted on charts and investor sentiment during the past few months

Softs lead as weather and supply risks return

Soft commodities were the strongest sector on the week, led by a sharp rally in Arabica coffee following an equally strong rebound in cocoa during previous weeks. The move extends a broader recovery as weather risks, supply concerns and nervous positioning re-emerged.

Arabica coffee and cocoa both gained around one-third from last month’s lows at their recent peaks, while sugar has rebounded by around 10% from the lows reached during an ethanol-linked slump as fuel prices eased ahead of the Middle East peace deal.

The common theme is renewed supply uncertainty. In coffee, adverse weather in Brazil has disrupted harvest progress and raised quality concerns. Cocoa remains highly sensitive to fragile West African supply conditions, while sugar has been supported by shifting expectations around the allocation of Brazilian cane between sugar and ethanol production.

The sharp reversals also highlight the role of positioning. After prolonged declines, bearish sentiment had become well established across parts of the sector, leaving markets vulnerable to short-covering when weather or supply concerns returned.

The United Nations’ index of food-commodity prices fell 0.3% in June from the previous month, led by grains and sugar. The FAO index which tracks a basket of internationally traded food commodities has only gained 1.7% in the last year, and remains around 19% below the record reached in the wake of Russia’s invasion of Ukraine in March 2022

Industrial metals remain under pressure

Industrial metals remained the weakest major sector, highlighting that easing rate pressure alone is not enough to trigger a broad recovery. Before Friday’s rebound, copper traded lower on the week, weighed down by the lack of a tariff update that Commerce Secretary Howard Lutnick had been due to deliver to President Donald Trump last Tuesday.

The recent decline appears far more technical than fundamentally driven. A break below key support levels forced commodity trading advisers and hedge funds to reduce long exposure, accelerating weakness even as exchange inventories continued to decline and physical demand remained relatively resilient.

In our view, there has been little meaningful change to the long-term investment case. Electrification, grid expansion, artificial intelligence infrastructure, data centres, electric vehicles and renewable energy continue to require significantly more copper than current levels of mine investment are likely to deliver over the coming decade.

Aluminium was among the weakest individual commodities, falling to its lowest level since February amid the return of supply from Persian Gulf producers, which account for nearly 10% of global output. Overall, the sector continues to face short-term concerns about global growth and Chinese demand. Lower yields and a softer dollar may provide support at the margin, but a sustained recovery will likely require clearer evidence of improving physical demand or stronger manufacturing activity.

Grains recover, but contango remains a headwind

Grains posted a modest recovery led by wheat, while corn also edged higher after the latest USDA planting and grain stocks reports delivered a supportive surprise. US farmers planted more corn than expected following the late-spring rally in prices, but the bearish acreage increase was offset by June 1 corn stocks coming in 2% below market estimates, reflecting stronger-than-expected demand.

Wheat found support after farmers planted fewer acres than anticipated, while soybean futures followed corn higher despite planted acreage matching trade expectations. Overall, the sector remains challenged by ample supply and forward curves in contango, a structure that benefits funds holding short positions while making long exposure more expensive to maintain through repeated futures rolls.

Looking ahead, as harvests begin across the Northern Hemisphere, attention is shifting towards yield and weather risks following a record-breaking heatwave across Europe. A developing El Niño — capable of triggering floods in one region and drought in another — threatens to add further uncertainty by damaging crops in key producing regions and potentially destabilising global food supply.

The Tour de France: commodities on two wheels

Finally, with the Tour de France underway, there is a timely reminder that even the world’s lightest, fastest and most technologically advanced products remain rooted in the physical world.

A modern racing bike may appear to be a triumph of aerodynamics, engineering and marginal gains, but almost every component begins with commodities. Before there can be carbon fibre, there must be energy and petrochemical feedstocks. Electronic shifting requires lithium, copper and other battery materials. Hydraulic braking systems rely on aluminium and steel. Tyres depend on rubber, silica and petrochemicals, while high-performance bolts, bearings and drivetrain components can involve titanium, molybdenum and specialist alloys.

Every July, millions watch riders disappear into the mountains. Most see elite athletes chasing yellow jerseys. Commodity investors might instead see an elegant demonstration that almost every technological breakthrough still begins with raw materials. Or, put another way, every pedal stroke starts somewhere between a mine, a refinery and a chemical plant.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The rally follows several months of heavy liquidation as improving production expectations and easing geopolitical concerns encouraged investors to reduce exposure. However, a combination of adverse weather, renewed supply concerns and fresh speculative buying has rapidly changed the narrative.

Brazil’s weather disrupts coffee and sugar

Brazil sits at the centre of the recent price recovery. The world’s largest producer of both Arabica coffee and sugar has experienced exceptionally heavy rainfall during what is normally the peak harvest period.

For coffee, this has resulted in the harvest progress slowing as saturated fields prevented machinery and workers from accessing plantations across key producing regions such as Minas Gerais. By late June, only about 33% of the Arabica crop was harvested, compared to over 42% at the same time last year. Besides delaying harvest activity, prolonged wet conditions also increase the risk of lower bean quality, raising concerns about the availability of premium washed Arabica supplies during the months ahead.

The same rainfall has simultaneously disrupted Brazil’s sugarcane harvest. Industry data has already pointed to a sharp decline in sugar output as mills struggled to maintain normal crushing activity while harvesting operations were interrupted by muddy field conditions. The combination has temporarily tightened physical supplies at precisely the time when seasonal availability would normally be increasing. In addition, the looming threat of the “Super El Niño” pattern has led to forecasters wiping out their previous expectations of a massive global sugar surplus, with predictions now pointing to a flat market or even a deficit for the 2026/27 season.

El Niño returns to the market’s attention

While current weather has disrupted this year’s harvest, investors are increasingly looking towards the 2026/27 growing season. Meteorological agencies have recently increased the probability of a so-called “Super El Niño” event developing later this year, reviving concerns across several major soft commodity markets.

For cocoa, the risk centres on West Africa, where Ivory Coast and Ghana account for around 60% of global production. El Niño historically brings hotter and drier conditions across the region, and early reports suggesting weaker development of young cocoa pods have already prompted traders to reassess production expectations ahead of the important autumn crop.

Coffee faces a different but equally important risk. Attention has shifted towards Brazil’s next flowering season when adequate spring rainfall will determine next year’s production potential. Should El Niño disrupt these rains, concerns could quickly shift from temporary harvest delays towards a more structural supply shortfall. The weather premium that largely disappeared during the earlier parts of the year has therefore returned to prices

Farmers and inventories tighten nearby supply

Another important feature supporting prices has been producer behaviour. Following two years of historically elevated prices, many coffee and cocoa farmers are entering this season in a stronger financial position than during previous cycles. Rather than selling immediately after harvest, producers have shown greater willingness to delay sales while waiting for potentially higher prices.

This has reduced nearby physical availability at a time when exchange inventories have also been declining. ICE-certified Arabica coffee inventories fell to their lowest level in more than two years during June, reinforcing concerns about immediate supply availability.

Against this backdrop, speculative investors who had previously exited the market have returned, helping accelerate the recovery through fresh buying and short covering.

Sugar adds an energy dimension

Unlike cocoa and coffee, sugar prices remain closely linked to developments in the energy market. Last month’s correction was partly driven by falling crude oil prices, which reduced the profitability of producing ethanol from sugarcane. Lower ethanol margins typically encourage Brazilian mills to maximise sugar production, increasing export availability and weighing on prices.

That relationship has since shifted. As crude oil prices stabilised but gasoline prices remained elevated, ethanol became more attractive again, prompting mills to redirect a larger share of cane toward biofuel production. The share of cane allocated to sugar production dropped from roughly 50% to around 41%, tightening physical sugar supplies and, together with the weather challenges, supporting the recent price recovery.

Looking further ahead, the developing El Niño outlook adds a significant layer of uncertainty. Besides Brazil, forecasters are increasingly monitoring rainfall prospects across India and Thailand, the world’s second and third largest sugar exporters. Should drier conditions emerge later this year, expectations for another global surplus could quickly disappear.

Outlook

The recent rally illustrates how rapidly soft commodity markets can transition from oversupply concerns to renewed scarcity fears. While the sharp rebound may leave prices vulnerable to bouts of profit-taking, the underlying weather risks remain unresolved. Harvest progress in Brazil, flowering conditions later this year, West African cocoa development and Asian monsoon performance will all play an important role in determining whether the recent recovery develops into a more sustained move or proves to be another weather-driven spike in what remains one of the commodity sector’s most volatile segments

.If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Today’s closely watched USDA acreage and quarterly grain stocks reports may determine whether this correction has largely run its course or whether markets still need to adjust to a more comfortable supply outlook. While traders continue monitoring forecasts for hotter weather across parts of the U.S. Midwest, attention has increasingly shifted towards evidence that the 2026 growing season has so far enjoyed generally favourable conditions.

The reports arrive at a time when sentiment has already deteriorated sharply, suggesting today’s reaction may depend as much on positioning as on the numbers themselves.

Hedge funds have completed a remarkable round trip

One of the defining features of this year’s grain market has been the extraordinary swing in speculative positioning. As weather uncertainty, geopolitical disruptions and higher crude oil prices combined to lift agricultural prices during the spring, managed money accumulated the largest combined long position in CBOT corn, soybeans and wheat since 2022. At the peak, hedge funds held a net long of approximately 556,000 futures contracts, equivalent to roughly 2.8 billion bushels.

That optimism has since evaporated driven by improved crop conditions, a sharp retreat in energy prices following the reopening of the Strait of Hormuz, stronger expectations for ample U.S. supplies and continued pressure from Black Sea exports have triggered aggressive liquidation. The combined position has now flipped back to a modest net short.

While this reversal reflects a much more cautious outlook, it also reduces the risk of another wave of forced selling. Should today’s USDA reports prove even modestly less bearish than expected, the market may instead become vulnerable to short covering after much of the speculative length has already been removed.

Bigger stockpiles help cushion weather risk

Corn will once again be the centre of attention with trade estimates pointing to a corn stockpile of around 5.4 billion bushels, approximately 17% above last year and potentially the highest level for the date since 1988. At the same time, planted acreage is expected to remain close to the March intentions survey, reinforcing expectations for another substantial harvest if summer weather remains broadly cooperative.

Such inventories provide an important cushion against weather-related disruptions, especially as forecasts continue to indicate periods of heat across portions of the Midwest, while NOAA continues to warn that El Niño may develop into one of the strongest events in decades later this year. However, higher beginning inventories mean the market does not need to assign the same weather premium as it might have under tighter supply conditions. Instead, weather risks are increasingly being weighed against what currently appears to be a comfortable inventory buffer.

Soybeans present a more balanced picture. Larger acreage and adequate supplies remain a headwind, but demand continues to receive structural support from the renewable fuels sector, particularly soybean oil.

Biofuel support has faded alongside crude oil

The spring rally in grains was never solely about weather but equally about the second-round impact of higher crude oil prices during the Strait of Hormuz disruption which improved the relative economics of crop-based biofuels, helping support soybean oil and, indirectly, the broader oilseed complex. Since then, crude prices have fallen sharply as Gulf exports resumed, removing an important macro tailwind for agricultural markets.

Even so, the longer-term demand outlook remains constructive for soybean oil. Higher U.S. renewable fuel mandates and continued expansion of renewable diesel capacity should keep biofuel demand growing, helping explain why soybean oil has significantly outperformed soybean meal this year.

Wheat, meanwhile, remains the weakest part of the grain complex. Rapid harvest progress in the United States, together with expectations for another sizeable Black Sea crop, continues to outweigh concerns about relatively poor U.S. winter wheat conditions.

Ample supplies and deep contango raise the bar for grain bulls

Another indication of the market’s increasingly comfortable supply outlook can be seen in the shape of the futures curve. Corn and wheat are both trading in a pronounced contango, where deferred contracts command a premium over nearby deliveries. As the performance table shows, the one-year calendar spread has widened to around 14.7% in corn and 10.4% in CBOT wheat, reflecting expectations that ample inventories and another sizeable harvest will leave supplies readily available well into next year.

For investors, the shape of the curve matters almost as much as the outright price direction. A market in contango generally favours investors holding short futures positions. As nearby contracts approach expiry, they tend to converge lower relative to the more expensive deferred contracts, allowing short sellers to benefit from the positive roll yield when positions are rolled forward.

Long-only investors face the opposite challenge. Maintaining exposure requires repeatedly selling cheaper expiring contracts and buying more expensive deferred contracts, creating a negative roll yield that gradually erodes returns even if the outright futures price remains broadly unchanged.

With inventories expected to remain comfortable and the market continuing to price abundant supplies beyond harvest, this carry structure has become an additional headwind for investors attempting to maintain long exposure across the grain complex.

Bottom line

The past two months have seen grain markets move from pricing weather uncertainty and geopolitical risk towards pricing comfortable supplies and improving crop prospects. That transition has been accelerated by one of the sharpest reversals in speculative positioning seen in recent years.

Today’s USDA reports are therefore likely to do more than update acreage and inventories. They will test whether the market has already priced the improving supply outlook or whether another adjustment lower is required. With hedge funds now positioned net short rather than heavily long, the balance of risk may increasingly depend on whether the data merely confirms expectations—or delivers a genuine surprise.

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Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The latest report shows investors becoming increasingly committed to one dominant macro narrative. Inflation concerns, speculation over higher interest rates, a stronger US dollar, the Federal Reserve’s hawkish shift and the recent Middle East peace agreement have together driven increasingly one-sided positioning across several asset classes.

While the underlying macro developments continue to justify much of this repositioning, markets have now reached levels where positioning itself deserves attention. When speculative exposure becomes either heavily concentrated or overly cautious, markets often become more vulnerable to sharp countertrend moves if the prevailing narrative begins to change. This risk may be amplified as markets approach the peak summer holiday period, when liquidity and participation typically decline.

Dollar long hits seven-year high

In foreign exchange, dollar buying continued during the reporting week, with the greenback gaining 1.5% following the Fed’s hawkish shift and renewed political uncertainty in the UK, which triggered another wave of sterling selling. The aggregate IMM net long dollar position against eight major currency futures increased 18% to USD 34.5 billion, surpassing the previous 2024 peak and reaching its highest level in seven years. The move represents a remarkable reversal from the USD 20 billion net short held before the Middle East conflict.

Apart from modest short covering in the Japanese yen, demand for the dollar remained broad-based. Sterling experienced the largest adjustment, with the net short position jumping 48% to a nine-year high of 106,000 contracts, equivalent to USD 8.7 billion. By the end of the reporting week, only two currencies still maintained net speculative longs against the dollar: the euro with 30,000 contracts and the Mexican peso with 74,000 contracts, together representing around USD 6.4 billion. These positions stood against a combined USD 41 billion net dollar long versus the remaining six IMM currencies.

SOFR short reaches another record

Outside forex and commodities mentioned below, positioning in US interest rate markets has also become increasingly one-sided with the leveraged fund short position in SOFR futures climbing to another record high of 2.97 million contracts, equivalent to more than USD 700 billion in notional exposure. The position has more than doubled during the past two months as higher energy prices and firmer inflation expectations encouraged markets to embrace the Fed’s higher-for-longer message following the June FOMC meeting.

Because SOFR futures move inversely to expected short-term interest rates, a short position effectively represents expectations that policy rates and funding costs will remain elevated or move even higher. Combined with the seven-year high dollar long and the sharp reduction in commodity exposure, the latest COT report suggests hedge funds have become unusually aligned behind one macro outcome.

Should the recent decline in energy prices help ease inflation expectations, or if the dollar weakens and markets begin to price a less hawkish Federal Reserve, these increasingly crowded positions could become vulnerable to a broad and potentially sharp repositioning across multiple asset classes.

Commodity liquidation accelerates

Another week of broad commodity weakness, which saw the Bloomberg Commodity Index fall 2.5%, triggered a fifth consecutive week of aggressive selling by managed money accounts.

During the past five weeks, the combined net long across the 25 major commodity futures tracked in this report has collapsed by 73% to just 478,000 contracts. Although this provides a useful gauge of investor sentiment, it does not fully capture changes in capital exposure because energy and metals carry substantially larger contract values than agricultural futures.

The speed of the reduction illustrates how rapidly investor sentiment has deteriorated as stronger dollar conditions, higher funding cost expectations and the recent tumble in energy prices have weighed on that sector but also grains, oilseeds and sugar through their biofuel and ethanol links to fuel prices, all encouraging broad risk reduction.

Energy longs continue to unwind

In nominal terms, the energy markets remained the main source of liquidation as traders adjust positioning away from the biggest disruption in living memory to a near-term oversupply as a mini-tsunami of barrels are being released from the Persian Gulf.

The combined hedge fund net long across WTI and Brent crude oil futures fell by another 36,300 contracts to 178,800 contracts, the lowest level in six months and 68% below the March peak when Middle East war and closure of the Strait of Hormuz drove prices sharply higher and encouraged expectations of an increasingly tight oil market.

The scale of the recent reduction in net positioning, driven not only by fundamental changes but also by a sharp deterioration in the technical outlook, has encouraged a major build-up in gross short positions in Brent to near record levels.

Metals show surprising resilience

Despite another difficult week for prices, speculative positioning across industrial and precious metals remained relatively stable.

This suggests hedge funds have so far shown relatively limited appetite to chase prices materially lower, potentially reflecting the view that the recent correction remains driven more by macro developments than a deterioration in longer-term supply and demand fundamentals.

Copper, which briefly broke below important technical support near USD 6.15 per pound, only experienced a modest 3% reduction in an already elevated net long position.

Agriculture completes a dramatic reversal

Agriculture once again accounted for the largest share of speculative liquidation. Since reaching a four-year high of more than one million contracts only last month, the combined net position across 13 major agricultural futures has swung to a net short of 49,000 contracts.

The reversal has primarily been driven by an 867,000-contract reduction in bullish exposure across corn, soybeans and wheat, leaving the combined grain position close to neutral. Additional selling in sugar and lean hogs was only partly offset by renewed buying in cocoa, coffee and cotton.

The speed of this reversal highlights how rapidly speculative sentiment has shifted as favourable weather, lower energy prices reducing bio-fuel linked support, improved crop prospects and a stronger dollar encouraged widespread long liquidation across the agricultural sector. However, with positioning now much lighter, the market may be more sensitive to any adverse weather developments during the critical growing season for corn and soybeans, potentially increasing the risk of a rebound in prices.

What is the Commitments of Traders report?

The COT reports are issued by the U.S. Commodity Futures Trading Commission (CFTC) and the ICE Exchange Europe for Brent crude oil and gas oil. They are released every Friday after the U.S. close with data from the week ending the previous Tuesday. They break down the open interest in futures markets into different groups of users depending on the asset class.

Commodities: Producer/Merchant/Processor/User, Swap dealers, Managed Money and other
Financials: Dealer/Intermediary; Asset Manager/Institutional; Leveraged Funds and other
Forex: A broad breakdown between commercial and non-commercial (speculators)

The main reasons why we focus primarily on the behavior of speculators, such as hedge funds and trend-following CTA’s are:

• They are likely to have tight stops and no underlying exposure that is being hedged

• This makes them most reactive to changes in fundamental or technical price developments

• It provides views about major trends but also helps to decipher when a reversal is looming

Do note that this group tends to anticipate, accelerate, and amplify price changes that have been set in motion by fundamentals. Being followers of momentum, this strategy often sees this group of traders buy into strength and sell into weakness, meaning that they are often found holding the biggest long near the peak of a cycle or the biggest short position ahead of a through in the market.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

The weakness highlights how metals are currently trading as financial assets first and commodities second. While long-term supply and demand fundamentals remain broadly supportive across several sectors, investors are focused on preserving capital amid rising volatility, elevated bond yields and a stronger dollar. In short, the market is currently paying more attention to the cost of money than the availability of metal.

Precious metals weighed down by funding costs

Gold’s recent rebound proved short-lived, with prices once again drifting lower towards the critical USD 4,000 area. The primary headwind remains the market’s reassessment of the US rate outlook following last week’s hawkish FOMC meeting.

The combination of higher bond yields, a firmer dollar and expectations that policy rates may remain elevated for longer continues to challenge investor appetite for non-yielding assets. While still seeing higher prices at the end of the year, several major investment banks have lowered their gold forecasts in recent weeks, reflecting a more cautious outlook for bullion under a higher-for-longer rate environment.

From a technical perspective, the USD 4,000 to 4,100 area remains critical. A sustained break below that zone risks triggering a fresh wave of capitulation and momentum-driven selling following the sharp correction already seen from this year’s record highs.

Silver has struggled even more than gold. The gold-silver ratio has climbed towards a three-month high around 66, underlining silver’s dual role as both a precious and industrial metal. While gold continues to attract some defensive demand, silver has faced additional pressure from concerns about global growth and weaker sentiment towards industrial metals more broadly.

Copper faces macro headwinds despite supportive fundamentals

Copper has not escaped the broader risk-off environment. HG copper has fallen sharply and is once again approaching a key area of support around USD 6.15 per pound. The decline comes despite little evidence of a material deterioration in the underlying physical market. Visible inventories across the major futures exchanges continue to trend lower, while long-term demand projections linked to electrification, grid investment, data centres and artificial intelligence-related power demand remain supportive.

Instead, copper is suffering from the same macro forces weighing on most cyclical assets. Investors have reduced exposure to growth-sensitive sectors amid concerns about tighter financial conditions and weaker economic momentum. The technology-led equity correction has added to that pressure. Over the past two years, copper has increasingly become associated with themes such as electrification, AI infrastructure and surging power demand. As a result, periods of weakness across technology and growth-related equities now increasingly spill over into industrial metals.

The current correction serves as a reminder that even markets supported by constructive fundamentals remain vulnerable when financial conditions tighten and investors move to reduce risk.

Why we may be close to peak hawkishness

While markets are currently focused on the risks associated with higher funding costs, there are growing reasons to believe we may be approaching peak hawkishness in the current cycle. The most important development is the sharp decline in energy prices.

Since the signing of the interim US-Iran agreement and the gradual reopening of shipping routes through the Strait of Hormuz, crude oil prices have fallen sharply. Refined fuel prices have also retreated, removing one of the key upside risks to inflation that dominated market thinking only a few weeks ago.

Lower energy costs feed through the economy relatively quickly. They reduce transportation costs, ease pressure on manufacturing input prices and help moderate inflation expectations. In turn, this may challenge the market’s assumption that the Federal Reserve will need to maintain an aggressively restrictive stance for an extended period.

The recent surge in speculative dollar longs also suggests that much of the hawkish narrative may already be reflected in current positioning. Should incoming inflation data begin to soften alongside falling energy prices, the dollar could struggle to maintain its recent gains. Such a development would be supportive for both precious and industrial metals.

Gold would benefit from lower real yields and a softer dollar, while copper and silver would likely find support from improved risk sentiment and expectations that financial conditions may become less restrictive.

Long-term support remains intact

While the current correction has been painful, it is important to distinguish between tactical market drivers and longer-term fundamentals. For gold, central bank buying, ongoing fiscal concerns, elevated debt levels and geopolitical uncertainty continue to provide structural support.

For silver and copper, the outlook remains tied to electrification, renewable energy investment, power grid expansion and growing demand from data centres and artificial intelligence infrastructure. None of these themes have disappeared.

Instead, they have temporarily been overshadowed by concerns about monetary policy, funding costs and risk appetite, a focus that may continue to dominate in the short term as some of the stock market’s previously high-flying sectors undergo consolidation.

For now, markets remain focused on the short-term macro backdrop. However, if energy prices continue to retreat and inflation pressures ease, attention may gradually shift back towards the underlying fundamentals that continue to support the metals complex over the medium and longer term.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

Ahead of today’s FOMC meeting, both the dollar and, in particular, US Treasury yields have drifted lower. However, the policy-sensitive two-year Treasury note continues to trade above 4% despite the recent decline, highlighting that markets have not fully ruled out the risk of higher rates. Overall, these developments, especially the sharp decline in oil prices, have helped improve sentiment across the precious metals sector. Traders will be paying close attention to comments from Federal Reserve Chair Kevin Warsh for guidance on the inflation outlook and clues on how policymakers balance still-elevated price pressures against signs of moderating economic growth and a gradually softening labor market.

While the near-term focus remains on monetary policy, the recent correction has also prompted investors to revisit the longer-term drivers behind the powerful rally in hard assets over the past several years. In gold’s case, these structural themes remain largely unchanged despite the recent price setback.

Central banks remain committed buyers

The World Gold Council’s 2026 Central Bank Gold Reserves survey once again highlighted the continued importance of gold as a strategic reserve asset. An overwhelming 89% of respondents expect global central bank gold holdings to increase over the coming year, while a record 45% expect their own institution to add to reserves. At the same time, 74% expect the share of US dollar holdings within global reserves to decline over the next five years, while gold’s share is expected to rise.

The reasons remain familiar. Gold continues to be valued given its diversification benefits and despite the recent drop its ability to hedge long-term inflation trends. However, geopolitical risk management and reserve diversification away from traditional reserve currencies are increasingly becoming key motivations for purchases. Taken together, the survey supports the view that central banks remain structural buyers of gold even after several years of record accumulation.

Asked the question, how do you expect your institution’s gold reserves to change over the next 12 months, 45% answered it would rise with EMDE banks continuing to lead their advanced economy counterparts when it comes to building gold reserves.

Technical damage but the long-term trend survives

From a technical perspective, gold currently trades broadly unchanged on the year after suffering a 23% correction from the January record high. While the sell-off appeared dramatic, it has so far only inflicted what technicians would describe as a relatively mild correction within a powerful long-term uptrend. Using the rally from the 2022 low to this year’s peak as a reference, gold found support below USD 4,100 after retracing just 38.2% of that advance, highlighting the resilience of underlying demand despite aggressive liquidation from leveraged traders.

The key challenge now remains the 200-day moving average, currently near USD 4,458, which has turned into resistance following the recent breakdown. A sustained move back above that level may in our opinion strengthen the argument that the correction has largely run its course.

Silver and platinum follow a similar but more volatile path

Silver and platinum have meanwhile followed a similar path to gold albeit with the added volatility lower volume metals offer. Silver remains supported by a structurally tight market, but recent developments in India have highlighted the risks posed by elevated prices. Indian silver imports plunged 87% year-on-year in May and fell to the lowest level in more than three years after authorities tightened restrictions and import controls while high prices dampened demand. In volume terms, imports dropped 94% to just 33 tonnes. While the longer-term outlook remains supported by persistent supply deficits and industrial demand linked to electrification and energy transition themes, the latest figures demonstrate that demand destruction becomes an increasing risk as prices move higher.

Platinum has experienced an even more volatile correction. Weaker liquidity combined with concerns about global economic growth and industrial demand helped drive a sell-off that came close to derailing the broader bull trend. Whereas gold held support after retracing 38.2% of its multi-year advance, platinum suffered a much deeper 61.8% retracement during last week’s capitulation event across precious metals and the broader PGM sector.

The subsequent rebound has shifted focus towards several important technical hurdles. Initial resistance is found around USD 1,870, the recent breakdown zone ahead of the 200-day moving average near USD 1,911. Much like gold, platinum’s ability to reclaim and hold above this level may determine whether the current rebound develops into a more sustained recovery or merely proves to be a temporary relief rally.

Focus may shift back to long-term structural drivers

For now, the precious metals sector appears to be moving beyond the inflation shock that dominated trading over the past several weeks, but reclaiming key technical levels will be necessary before investors can confidently try call an end to the month-long slump. However, as energy prices retreat and rate hike expectations moderate, investors may increasingly return their attention to the structural themes that have supported hard assets in recent years: central bank reserve diversification, fiscal concerns, geopolitical uncertainty and the ongoing search for stores of value outside traditional fiat currencies.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

In FX, dollar buying dominated trading during the week to 9 June after a stronger-than-expected US jobs report on 5 June helped the greenback post its strongest daily gain in more than two months. By the end of the reporting week, the dollar had risen around 0.7% against a basket of major currencies. The one-sided focus on dollar strength triggered a 69% surge in the aggregate net long dollar position against the eight IMM currency futures, lifting it to USD 28 billion, the highest level in fourteen months.

Selling was broad-based and led by the euro, where the net long was reduced by 34.9k contracts to 14k contracts, equivalent to around USD 2 billion. This was followed by a reduction in bullish bets on the Australian dollar, and increased short positioning in Canadian dollar, Australian dollar, Japanese yen and British pound.

As a result, the speculative net short in the Japanese yen climbed to a fresh 23-month high of 146k contracts, equivalent to roughly USD 11.5 billion. It remains the largest short position held against the dollar despite repeated intervention warnings from Japanese authorities.

Commodities

In commodities, a 4.5% slump in the Bloomberg Commodity Index triggered a third consecutive week of broad and aggressive selling by managed money accounts, with all but a handful of the 25 major futures contracts tracked in this update recording net selling. Measured by both contract volume and notional value, it was a heavy week for the sector, with liquidation concentrated in Brent crude, gold, soybeans and corn. Over the past three weeks, hedge funds have liquidated close to one million contracts across commodities, by far the largest reduction in positioning seen over the past decade. Importantly, this wave of selling has left positioning considerably leaner, reducing the risk of further forced liquidation and leaving traders better placed to respond to changes in the technical and fundamental outlook.

In energy, the Brent crude net long was cut by 43.6k contracts to 208.9k, a five-month low and less than half the 430k-contract peak recorded during the early stages of the Middle East crisis. Selling in WTI remained relatively muted, partly reflecting an already reduced position and continued trader focus on Cushing inventory levels for signs of potential stress that could support WTI relative to Brent.

In metals, 7% and 5% declines in the Bloomberg precious and industrial metals indices respectively drove broad-based selling across all five metals tracked in this report. The gold net long was reduced to 103.7k contracts through a combination of long liquidation and fresh short selling, while the recent in-demand HG copper contract saw its net long trimmed by 8% to 71k contracts after reaching a more than five-year high the previous week.

Once again, however, the bulk of the liquidation occurred across the agriculture sector, where positioning continues to unwind at a rapid pace. Since reaching a four-year high last month, the combined net long across 13 major agricultural futures contracts has collapsed by 83% to just 179k contracts. The move has been driven primarily by a 688k-contract reduction in bullish positions across corn, soybeans and wheat, led by corn as incoming harvest pressure weighs on wheat prices and generally favourable US growing conditions improve production prospects for both corn and soybeans. The scale of the decline suggests speculative long liquidation, particularly in corn and soybeans, has amplified an already fundamentally driven correction.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions.

May was a month of contrasts. While investors continued pouring money into technology and AI-related equities, helping push major stock indices towards fresh highs, commodity markets spent much of the month reassessing the outlook for supply disruptions stemming from the three-month conflict in the Middle East. So, while equities focused on the productivity gains and investment opportunities associated with artificial intelligence, commodities focused on whether the largest supply shock in years may finally begin to ease.

The reaction has been most visible in energy markets. Brent crude oil fell below USD 86 per barrel, a three-month low after President Trump once again signalled that negotiations were progressing towards a potential agreement. Unlike previous announcements that were met with considerable scepticism, markets this time appear increasingly willing to price in a meaningful probability of success.

Part of that optimism reflects developments on the ground. While still far from normal, flows of crude oil, refined products and natural gas through the Strait of Hormuz have shown tentative signs of improvement in the past week. At the same time, traders are increasingly focused on the prospect of a surge in exports from tankers currently stranded inside the Gulf and those waiting outside to pick up cargoes once shipping conditions improve further, potentially creating a temporary period where the market experiences a supply disruption in reverse. However, given the decline in Brent crude already seen and the fact that we have entered the peak seasonal demand period, the scope for significantly lower prices beyond the initial wave of delayed crude and product shipments appears limited in our view.

The continued use of pipeline rerouting by Saudi Arabia and UAE means that flows through the strait may not need to return to pre-war levels to normalize overall Middle East flows, but much now hinges on the ability to restart 10,000 wells and how quickly storage facilities can be reduced in order to receive fresh production. The 2027 average Brent crude price trades around USD 78, some 18% above the pre-war level highlighting a market that is pricing in a higher for longer scenario amid additional demand towards the rebuilding of commercial and strategic stockpiles, with the offsetting factor being the level of long-term demand destruction due to higher prices. For now, traders appear focused on the immediate implications of a reopening rather than the longer-term challenges that remain.

The resulting decline in energy prices has reverberated across commodity markets. The Bloomberg Commodity Index is down around 5% so far this month, reducing its year-to-date gain to around 19%. The weakness has been remarkably broad-based, with copper and cattle being the only exceptions out of 26 major futures contracts trading in the black this month.

Lower crude oil prices have spilled into several agricultural markets through their links to biofuel, ethanol and synthetic-fibre demand. Soybean oil, corn, sugar and cotton have all experienced renewed selling pressure as the economics supporting alternative fuel production have weakened alongside energy markets.

The latest wave of liquidation across metals has also been notable for its breadth. Rather than reflecting commodity-specific developments, recent price action increasingly resembles a macro-driven adjustment across the sector triggering an increased amount of technical short selling. Rising inflation expectations following the Middle East conflict, supporting higher bond yields, a stronger dollar and growing speculation that the Federal Reserve may need to maintain a restrictive monetary stance for longer have collectively created a challenging backdrop for commodities. As a result, investors have reduced exposure across several sectors simultaneously.

The precious metals complex has been particularly hard hit.

Despite recovering amid the latest Middle East peace attempt, the Bloomberg Commodity precious metals index has fallen around 8% this month and is down around 2% for the year. The selloff has been led by silver and platinum, which tend to be more volatile than gold due to their smaller and less liquid markets.

Gold fell to a seven-month low this week near USD 4,000 after recently breaking below its 200-day moving average - last around USD 4,450 - triggering technical selling and long liquidation, resulting in gold retracing 38.2% of its 2022–2026 rally. The sharp correction driven by technical momentum selling and recently also forced long liquidation has triggered a broad reset in investor sentiment, reflected in lower futures open interest, ETF outflows and softer physical demand.

As mentioned, gold and most other metals rebounded following Trump’s latest announcement on Iran as short sellers reduced exposure. The rally reflects hopes that a successful agreement could help ease inflation pressures through lower energy prices, thereby reducing pressure on bond yields and allowing investors to refocus on longer-term supportive themes such as fiscal debt concerns, central-bank diversification away from the dollar and ongoing geopolitical fragmentation.

However, markets will likely need a signed agreement and clear evidence of improving energy flows before confidence fully returns. Until then, sentiment is likely to remain fragile while gold trades below its 200-day moving average, currently around USD 4,450.

Industrial metals have proven more resilient.

The Bloomberg industrial metals sector is down around 2% this month but still holds gains of nearly 13% for the year. Copper remains the standout performer despite the recent correction.

COMEX high-grade copper continues to trade close to unchanged on the month after successfully defending key support near USD 6.15 per pound. The market also maintains a premium over London Metal Exchange prices as traders await the outcome of the U.S. administration’s review of potential copper tariffs, due by the end of June.

While copper has not escaped broader risk reduction, its structural outlook remains supportive. Demand linked to electrification, power-grid investment, artificial intelligence infrastructure and defence spending continues to underpin the longer-term narrative, helping the market absorb periodic bouts of macro-driven weakness.

Looking further ahead, another potentially significant risk factor has emerged.

The Japan Meteorological Agency has formally declared the return of El Niño conditions in the equatorial Pacific, marking the first event since 2023. Some forecasters are already discussing the possibility of a particularly strong episode, with a 63% chance it could evolve into a “Super El Niño” heading into 2027, raising concerns about another period of weather-related disruptions across global commodity markets.

El Niño arrives at an especially sensitive moment. The global economy is still adjusting to the inflationary consequences of the Iran conflict, while supply chains remain vulnerable following months of disruption. Historically, El Niño has been associated with drought conditions across parts of Australia, Southeast Asia and southern Africa, regions critical for grain, sugar and other agricultural production. At the same time, heavier rainfall in parts of South America can disrupt transportation networks and potentially affect mining operations, including copper production in Chile and Peru.

Beyond agriculture and mining, elevated temperatures often increase electricity demand and place additional strain on power systems, creating knock-on effects for natural gas, coal and power markets. Stronger cooling demand, particularly across Asia, could lift gas consumption for power generation and provide support to global LNG prices as European and Asian buyers compete for available cargoes. This comes at a time when Qatar, one of the world’s largest LNG exporters, may struggle to return to full export capacity for many months after damage to export facilities during the early stages of the conflict, potentially limiting supply flexibility during periods of peak demand.

At this stage, the impact remains largely a risk premium rather than a realized supply shock. However, after spending much of the year focused on geopolitics and energy security, commodity markets may soon find themselves having to contend with another familiar challenge: the weather.

For now, however, the dominant theme remains the ebb and flow of diplomacy between Washington and Tehran. Markets are increasingly willing to believe that a path towards normalization exists, but belief alone will not fully remove the war premium. Until an agreement is signed and reflected in physical energy flows, commodities are likely to remain highly sensitive to every headline emerging from both capitals.

If you want to invest and trade global markets, start or continue your journey with Saxo, for investors and serious traders, worldwide.

Disclaimer
This Substack is mostly a space where I link to content I’ve published on the Saxo Bank homepage, along with the occasional thought or comment. Nothing here should be taken as investment advice or a recommendation—it’s purely for informational and marketing purposes. The views are mine and not necessarily those of Saxo Bank. As always, do your own research and speak to a professional before making any investment decisions