Copper Takes Over from Gold as Crude’s Risk Premium Deflates
The Bloomberg Commodity Index (BCOM) traded flat for a second week, with support coming from the strength in the metal sector, both precious and industrial. On the other hand, the energy sector saw a second week of selling as traders grappled with assessing the appropriate level of risk premium to account for geopolitical risks.
Industrial metals, particularly copper, have seen a boost from tight supply and sanctions. Copper prices have surged to levels last seen in June 2022, driven by global growth and demand optimism, as well as downgrades to 2024 mine supply. The green transformation and increased use of AI applications have further fueled demand for copper, leading to the possibility of a fresh record high in the second half of the year. Additionally, withdrawals of aluminium and nickel from LME warehouses due to sanctions on Russian metals have also supported a strong trade in these metals.
Meanwhile, gold’s exceptional run continued for a fifth week, despite challenges such as a strong dollar and rising bond yields. Gold has returned over 15% so far this year, surpassing last year’s gains. Geopolitical risks, strong retail demand in China, and central bank demand have all played a role in gold’s rally.
Diesel weakness has added pressure on the crude oil market, with losses led by gasoline and diesel amid signs of a deteriorating global market. The energy sector continues to be influenced by OPEC+ production restraints, geopolitical tensions, and rising global oil demand.
Overall, the commodity markets are experiencing a mix of challenges and opportunities, with copper emerging as a standout performer while gold continues to defy traditional macro drivers. As the market navigates these dynamics, traders and investors will be closely watching for potential corrections and further market shifts.
