Commodity markets in the wake of trade tensions

In July, several global share indices reached new record highs, fueled by optimism surrounding President Trump's announced tax reform ("One Big Beautiful Bill") and robust corporate profits. At the same time, the trade conflict remains a noticeable negative factor, with effective US tariff rates climbing to a multi-decade high. An agreement negotiated in parallel with the EU brought some relief, with Europe agreeing to import more US energy and selectively reduce tariffs.

Macroeconomic developments paint a mixed picture: In the US, gross domestic product rose by around 3 percent in the second quarter of 2025, which is solid growth. In July, however, the labor market disappointed with only around 73,000 new jobs created, sending the first signs of a slowdown. There were no surprises at the latest Fed (Federal Reserve) meeting: Jerome Powell gave no clear indication of a possible rate cut in September, although its occurrence is increasingly expected by the market, given weak labor market data. The tension between the President and the Fed Chairman on this issue remains palpable.

In China, GDP grew by 5.3 percent year-on-year in the first half of the year. This growth was driven by strong export figures and targeted infrastructure investments. However, the purchasing managers' indices sent out negative signals in July: weather disruptions and measures to reduce overcapacity are slowing economic momentum and clouding the outlook for commodity imports, particularly in the base metals sector.

The entire commodities sector as measured by the S&P® GSCI (Standard & Poor Goldman Sachs Commodity Index) recorded a slight increase of around 1 percent in July, but remains down by around 3 percent since the beginning of the year. A strong US dollar and the weakening labor market acted as headwinds. Within the individual energy sectors, the picture is mixed:

Energy (oil & gas)

The price of Brent oil rose by over 5 percent in July, but has fallen by over 10 percent since the beginning of the year. This was triggered by geopolitical tensions: President Trump issued an ultimatum to Russia for a ceasefire in Ukraine, coupled with speculation about possible secondary sanctions against Russian oil buyers such as China and India. The threat alone was enough to cause the oil price to rise in the short term. In an extreme case, strict sanctions could result in the loss of over 5 million barrels of oil per day (Center for European Policy Analysis, 16.07.2025). In contrast, natural gas prices fell by around 11 percent in July and have lost over 20 percent in value since the beginning of the year: a surprisingly mild summer reduced demand for electricity generation, while the expansion of renewable energies is gaining momentum and maintenance work on LNG terminals is limiting export capacities.

Base metals

Prices in the base metals sector fell slightly by more than 2 percent in July (as measured by the S&P® GSCI Industrial Metals Index). The sharp slump in copper prices at the end of July was particularly noticeable. Following an investigation by the Trump administration into possible copper tariffs, the COMEX (Commodity Exchange) copper price on the US commodity exchange CME (Chicago Mercantile Exchange) shot up by over 10 percent at the beginning of July. However, everything changed at the end of the month: Donald Trump imposed tariffs of 50 percent exclusively on imports of semi-finished copper products, but excluded refined copper and copper concentrate from the tariffs. As a result, the price of copper plummeted by more than 20 percent, meaning that the copper price has only gained around 10 percent since the beginning of the year. Declining Chinese demand and a more fragile industrial outlook exacerbated the downward trend.

Precious metals

The price of gold remained relatively stable in July (-0.4 percent), supported by a weaker US dollar and continued expectations of interest rate cuts by the Federal Reserve. Since the beginning of the year, the gold price has risen by over 25 percent. Palladium was a clear winner among the precious metals with a gain of around 9 percent in July (up around 28 percent since the start of the year). Supported by ETF inflows and geopolitical uncertainties (Russia supplies around 40 percent of the global supply), the metal recorded an increase in value.

Soft commodities

Soft commodities fell slightly in price (around -0.5 percent measured by the S&P® GCSI Softs in July, around -12 percent since the start of the year). The price of cocoa was one of the negative factors, falling by around 2.5 percent in July and now trading around 25 percent lower than at the start of the year. The reasons for this can be found in weak processing data, which indicates a decline in demand. At the other end, live cattle (around +7.0 percent in July and around +20 percent since the beginning of the year) benefited from a strong cash market and repeated border closures between the USA and Mexico.

The ongoing trade conflicts remain a defining issue, but so far their direct impact on the commodity markets has been limited. The answer to the question of the extent to which tariffs will drive up consumer prices in the US and dampen growth could be decisive. In China, a possible decline in exports, particularly in the base metal sector, is causing uncertainty.

In the US, the labor market could also remain an important factor influencing commodity prices: weak employment figures could prompt the Fed to cut interest rates as early as September, which could boost precious metals, especially gold.

Tension continues to build in the energy sector. In the short term, there is a threat of oil price instability, depending on whether sanctions against Russian oil actually take effect or whether Donald Trump can achieve a long-awaited step towards peace with the two parties to the conflict, Russia and Ukraine. On the other hand, a political turnaround in OPEC+ (Organization of Petroleum Exporting Countries) could also support supply and put pressure on prices.