The reelection of Donald Trump as president of the United States had a notable impact on commodities markets, with significant declines driven by a stronger dollar and investor repositioning. According to Marcus Garvey, Head of Commodities Strategy at Macquarie, uncertainty surrounding trade and tariff policies is affecting global growth projections. Additionally, inflation and geopolitical risk may continue to influence the prices of assets like gold and oil. “Supply and demand for commodities will remain heavily influenced by macroeconomic factors beyond specific policies,” Garvey notes.In its latest report, Macquarie suggests that the initial sell-off in commodities following Trump’s reelection was likely a knee-jerk reaction to the pronounced strength of the U.S. dollar. The Bloomberg Commodity Index (BCOM) closed the day down approximately 1%.Investor Positioning and Market Dynamics
Garvey highlights how investor positioning played a role in the market’s movements. For example, zinc, which had significant long positions, saw a nearly 5% decline, while Brent crude, heavily shorted, recovered somewhat to close with a loss of less than 1%. “Subsequent recovery aligned with a slight easing of the dollar and outperformance in the markets initially hit hardest,” he adds.While short-term commodity price fluctuations often move inversely to the strength of the dollar, Garvey stresses the importance of distinguishing between causation and correlation. “Exchange rate fluctuations alone are not definitive drivers of commodity price changes—note that the relationship between the dollar and commodity prices has been inverted for much of the past three years. The underlying macroeconomic factors are what truly matter,” he explains.Risks of Stagflation and Global Slowdown
Macquarie economists predict that the combination of higher tariffs, large and growing deficits (due to tax cuts), and reduced immigration (through deportation of undocumented immigrants) could likely slow growth and raise inflation, potentially leading to stagflation by late 2025.They also warn that a 60% tariff on all Chinese imports, combined with broader trade restrictions, could reduce China’s exports by 8 percentage points and its GDP by 2 percentage points by 2025.This global slowdown, they argue, would be bearish for overall commodity price trends, exacerbated by the bullish implications for the U.S. dollar. “While commodities are often considered an inflation hedge, this scenario—where inflation is not driven by strong demand growth or a negative commodity supply shock—would make it difficult for them to fulfill that role,” Macquarie argues.Policy Uncertainty and Commodity Sensitivity
Macquarie warns that the specifics and implementation mechanisms of tariffs remain unclear, as does the extent to which Chinese authorities may counteract their impact by boosting domestic demand. They point to corporate debt growth and monetary supply expansion as key signals to monitor for the effectiveness of monetary easing in China.In the U.S., the experts suggest that before Trump’s policies take effect, commodity prices will likely react to headlines. The high degree of uncertainty makes it exceptionally difficult for markets to price in a specific outcome. “This could amplify the impact of current favorable conditions—China’s initial monetary easing gaining traction in industrial activity, real wage growth in developed markets supporting consumption, and the strong performance of other risk assets—lifting prices in early 2025. The net effects on global growth will only become apparent afterward,” Macquarie economists add.Oil and Geopolitical Risks
Regarding oil, Macquarie sees Trump’s “drill, baby, drill” policy unlikely to significantly accelerate crude production but suggests it could marginally increase investor appetite for oil and gas.Given already high levels of activity—daily production has increased by 1 million barrels since 2019 and 2 million barrels since the 2020 pandemic lows—supply is expected to continue responding to prices rather than policies.However, geopolitical tensions under Trump’s second administration could result in supply-side surprises. “In both the Middle East and in relation to Russia’s invasion of Ukraine, scenarios exist where the currently discounted risk of supply disruptions could materialize,” the Macquarie economists warn.Gold: A Hedge Against Uncertainty
While gold’s geopolitical uncertainty boost tends to be short-lived, Macquarie identifies two key drivers that could push prices higher despite dollar strength. Chinese Investors: If Chinese investors use gold to hedge against currency devaluation risks, it could diminish the sensitivity of Western investors to the opportunity cost of holding a zero-yield asset with zero credit risk. Safe-Haven Appeal: Reduced sensitivity to these costs could solidify gold’s role as a crucial hedge in uncertain economic environments.
“Gold’s unique position as a zero-yield but zero-credit-risk asset is critical in this context,” Macquarie concludes.
