Commodity markets concluded a turbulent first half of 2026 driven by escalating Middle East tensions as well as record El Nino weather patterns and shifting regulatory standards and metals industrial metals gained 6.6% on energy transition to demand while precious metals slip by 7.6%.
But at the same time structural forces are making institutional investors reevaluate whether commodities are entering a new multiyearable market now here. the mid outlook as well as portfolio positioning is we hold, product manager for commodities indices at Bloomberg.
Jim, great to have you here.
Thank you so much for joining me.
Thanks for having me.
Well, the first half of 2026 has seen volatility across all asset classes, but commodities in particular.
Tell us about what drove the rally in commodities and whether you think this is part of a long term trend.
Yes, well, the prior few years we've seen an abundance of supply across commodity sectors, but that has completely turned itself on its head this year with the start of the U.S.Iran war we've had an immediate reduction of oil supply, and that is still continuing to this day, although there's a little bit of halt for now, but yes, oil prices immediately spiked higher and then that oil tends to be the input to the production of a lot of other commodities as well, so it's still the driving force of the global economy and the main source for energy.
So that when the supply got cut off, it immediately caused prices to spike, and some of the reasons why it only didn't go to $200 a barrel was because China was able to hit some of their economic levers and slow down.
Saudi Arabia was able to divert some of their oil away from the Strait of Hormuz to the Red Sea, although now we're having escalation of geopolitical tensions there, so there's still some back and forth with the supply issue and demand is still strong because the global economy is still humming along according to the latest economic data points globally.
Yes, and as you mentioned, we continue to monitor the conflict in the Middle East, and right now, while there is a pause, tensions continue to simmer and that has been affecting oil prices, including WTI as well as Fred.
But I do want to move on to metals, in particular what we're seeing in industrials versus precious.
So why are we seeing a difference between industrials and precious metals this year?
Yes, this just happened to work out with one of my key themes for my outlook.
Beginning of the year where I thought industrial could outperform precious and so far halfway through the year it has, and part of the reason was because precious metals they ran up in price, particularly gold over the last 2.5 years, silver, platinum, palladium, they all spiked in the first quarter and then as I've probably said before, gold tends to go on those runs and then months to potentially years of consolidation sideways price action as the Bulls and the Bears compete.
We saw people take profit.
We saw the central banks slow on their purchases, but that's picking up again.
The World Gold Council just came out with their survey of what every central bank is expected to do over the next year, and it's the highest rating of increase their holdings that they've said in this survey.
So there's impetus for the central banks.
Continue increasing their purchases as gold has come off and we'll also see the headwind of the US dollar strengthening.
We have the Fed meeting tomorrow where there's potential for a hike, it's about a 33% chance right now.
And that could lead to a lot of volatility and if that happens, we could see a little bit of a move lower in gold, maybe below the $4000 mark, but the dollar, if it continues to strengthen, that tends to be a headwind for commodities, although it's already moved quite drastically over the last few months in a strengthening pattern.
It might be a little bit overbought at this point.
Yes, and you mentioned central banks and the two day Fed meeting does kick off today.
The rate decision is expected tomorrow afternoon, so that was something that we're paying attention to.
But the oil factor does affect central banks around the globe differently.
So you mentioned China.
How does electrification play into this equation?
That's another piece of it is, you know, because they were able to increase their fleet of electric vehicles and their reliance on electrification.
Of fossil fuels, that was also a reason why oil prices spiked, but they didn't spike as dramatically as some people could have forecast when you immediately have 20% of global oil supply taken off.
So that means that the energy transition is still happening globally and you know it's clearly taken a hold in Europe and more so in China in recent years.
The US is still, it's uncertain if the US is going to fully embrace it with the current administration, but Globally it's clear that the energy transition is happening where there's going to be more demand for industrial metals, battery metals, and precious metals and less so for the energy commodities in the next few decades.
And Jim, this is the time of year that we start looking at the second half and what we can expect in Q3 as well as Q4.
But as you look ahead, what are some risks as well as opportunities that you're paying attention to?
Well, some risks are just a general potential bear market in equities and fixed income.
We are seeing weakness, especially in the chip stocks and tech names, and if that continues, that will put a damper on global growth which will potentially lead to less demand for raw materials and economic activity in general.
But because we're seeing a deglobalization trend, supply chain.
Issues we're seeing extreme weather destroying crops and crop yields are some of the worst they've been in a very long time.
The wheat crop in the US is expected to be the worst since 1970, and we just had the corn and soy crops that are 63% good, excellent, which is well below expectations.
So there's competing forces and in general we're kind of in this world of increasing costs of doing business overall.
So even if demand slows, we still have Potential inflation around the corner and we see the increase in freight costs to actually move all these goods skyrocket this year as well.
The cost to hire a tanker to move anywhere near the Saudi Arabian Peninsula just has skyrocketed to multiple times what it was this time last year.
So in general, the cost of business is going up and we're seeing that reflected in commodities prices that are rising.
The Bloomberg.
Index is up about 20% as of this recording here.
So you know, and you see equities aren't up anywhere near as much and fixed incomes about flat on the year.
So commodities and BCom have clearly been the diversifier that it historically has been in years prior.
Well Jim, we will have to leave it there, but of course a lot to keep our eyes on when it comes to commodities.
So thank you so much for joining us today with your outlook for the second half.
Thank you so much.
