This week in metals, energy, equities, rates and softs
Metals, Energy, Equities, Rates and Softs
Metals
Gold consolidating over the last week, albeit
a wide range
UBS and Goldman Sachs raised their gold price forecasts for 2025, citing strong investor sentiment and macroeconomic uncertainties. UBS increased its year-end target to $2,900 per ounce, with potential to reach $3,200, while Goldman Sachs set a target of $3,100, possibly rising to $3,300 if policy uncertainties persist. Global equity markets exhibited mixed results, with U.S. stocks declining due to concerns over President Trump's rapid policy changes, including significant spending cuts and new tariffs. This uncertainty led investors to seek safe-haven assets, providing support to gold prices. President Donald Trump announced plans to visit Fort Knox to verify the U.S. gold reserves, following public speculation about their security. This move aimed to address concerns but also sparked discussions about the potential sale or revaluation of the nation's gold holdings. Analysts noted that even if the U.S. were to sell its approximately 261.5 million ounces of gold, valued at around $770 billion, it would make only a modest impact on the $36.22 trillion national debt. The possibility of revaluing the gold reserves was also considered, but such actions would require Congressional approval and were deemed unlikely to significantly affect the debt situation.
Market impacts: The gold market remains sensitive to geopolitical and macroeconomic shifts.
Short-term volatility is likely as investors react to policy moves and central bank actions.
Gold miners and ETFs could see sustained inflows if higher price targets hold.
Broader market implications depend on how the dollar, interest rates, and inflation expectations evolve in response to these developments.
Energy
Natural gas on a tear this week
An intense Arctic blast swept across central and eastern regions of the United States, leading to a sharp rise in heating demand. The severe cold not only increased consumption but also caused production issues due to "freeze-offs," where wells are temporarily shut down because of freezing conditions. In response to the cold weather and its impact on supply and demand dynamics, the U.S. Energy Information Administration (EIA) adjusted its price forecasts. The EIA now projects that the U.S. benchmark Henry Hub natural gas spot price will average $3.80 per million British thermal units (MMBtu) in 2025, a 20% increase from previous projections
Market Impacts: This price surge was largely weather-related, meaning prices could ease once temperatures normalize and demand declines in March.
As freeze-offs subside, natural gas production should rebound, alleviating supply constraints, and with spring approaching, lower heating demand will allow storage levels to recover, capping further price spikes.
Overall: The U.S. remains an oversupplied market with strong production capacity, making it unlikely for prices to stay elevated long-term unless a new supply shock emerges. Stay nimble!
Equities
Portfolio diversification remains critical in 2025
Volatility continues in the U.S. equity markets. Overall, two months into 2025, and already some notable trends are appearing in the markets. These include 1) the broadening of stock-market leadership beyond U.S. mega-cap technology, 2) the stabilization of government bond yields, and 3) European equities showing signs of life after underperforming. This week was notable in data as it indicated a near-stagnation in U.S. business activity for February, raising alarms about a potential economic slowdow with contractionary services PMI with hot UMich inflation expectations.
Market Impacts: High volatility leads to sector rotation. Defensives tend to perform better in this environment, particularly utilities.
Softs
Chocolate Lovers Rejoice! Cocoa plunges more than 11%
High prices are the cure for high prices as are low prices the cure for low prices. The extended upward trend likely prompted investors to secure profits, leading to increased selling pressure and a subsequent price drop. The World Bank projected a 9% decline in cocoa prices for 2025, anticipating a recovery in production levels.
Market Impacts: In summary, the recent 11% decline in cocoa prices appears to be a market correction following a prolonged period of price escalation, influenced by expectations of supply recovery and adjustments in demand dynamics.
Rates
Treasury yields stabilize after rising sharply since September last year
The U.S. 10-year Treasury yield rapidly rose by nearly 120 basis points (1.2%), from about 3.6% to 4.8%, from September to early January. This sharp move higher was driven by a combination of better-than-expected U.S. economic data, uncertainty around inflation and spending by the new administration, and the idea that the Federal Reserve would likely not be cutting interest rates much further in 2025. Over the past few weeks, however, Treasury yields have stabilized, and the 10-year yield has returned to around 4.5%.
Market Impacts: Higher yields previously pressured growth stocks, particularly in tech, due to their reliance on future cash flows. Stabilization could provide relief.
Sectors like energy, financials, and industrials that benefited from higher rates might see some rotation if yields stop rising. If Treasury yields stabilize, the dollar may lose some momentum, easing pressure on emerging market currencies.