Prices of commodities flatlined between January 2024 and the start of 2026 – now they are rocketing. The S&P GSCI index of 24 major raw materials has surged 29% since 1 January. That reflects a heavy weighting towards energy, which accounts for more than half of the index’s composition. Higher oil and gas costs will also feed through into agriculture prices, the index’s second-biggest component. US wheat futures have risen 15%.
The Middle East isn’t just a source of hydrocarbons, says The Economist: 22% of the world’s traded urea (a fertiliser), one third of its helium and 45% of its sulphur (used as a plant nutrient) comes from the region. The Gulf is also a major source of petrochemicals required for everything from basic pharmaceuticals to glycol (a paint ingredient). With spring planting “imminent” in the northern hemisphere, a squeeze on fertiliser supply that lasts another few weeks risks “catastrophic” consequences for global harvests later this year.
The commodities uplift has not carried over into metals, with the S&P GSCI Industrial Metals index flat since the start of the year. Aluminium prices have risen 8% since 1 January; the Middle East accounts for 9% of global production. But nickel has gone nowhere, while copper (down 4% this year) has been behaving like gold, suffering a pullback after a multi-year boom. The prospect of global stagflation doesn’t bode well for the industrial demand that underpins metals markets.
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Copper entered the year with “a dose of the metals fever” amid dire warnings that soaring demand for electricity will cause shortages, says Andy Home on Reuters. Yet while traders bet on copper shortages later this decade, current supplies are ample. In the US, Chicago Mercantile Exchange warehouse stocks have rocketed from 85,000 tons at the start of 2025 to 536,000 tons today (US stockpiling has been turbocharged by attempts to beat import tariffs). “The gap between speculators’ great expectations” and the “current reality” of well-supplied warehouses “yawns ever wider”.
The structural metals story could yet come true, says Alan Livsey in the Financial Times. Sluggish prices between 2015 and 2022 prompted major global miners to cut spending on new mines by “at least a third” and focus on paying dividends instead. While investment started rising again in 2023, mines have very long lead times. The consequences of historic underinvestment will soon loom large. Real assets enjoy other attractions. They provide a hedge, both against bouts of inflation and a prolonged fall in the dollar, which presently appears somewhat overvalued. And at a time of AI-driven concentration risk, investors are eager to diversify into other themes. “Commodities tend to go through cycles,” says Evy Hambro of BlackRock. “We appear to be in the foothills of the next cycle.”
Why gold has lost its shine
(Image credit: World Gold Council)
Investors looking to gold for relief from the energy shock have been left disappointed. Gold has fallen 16% in dollar terms (and 15% in sterling) since hostilities began on 28 February. You would expect gold to do well at a time of war and inflationary pressure.
So why the pullback? Firstly, gold had already been on a record-breaking rally that saw it reach an all-time high in late January. Having rocketed 174% over the previous two years, the yellow metal entered the conflict looking overextended. Secondly, gold is strongly influenced by real interest rates (interest rates adjusted for inflation). While inflation looks poised to rise, so are interest rates, reducing gold’s appeal relative to competitors such as government bonds.
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