The article below is an excerpt from our Q1 2025 commentary.
Has the Great Commodity Bull Market Quietly Begun?
It is beginning to look that way. The signs are not yet shouted from the rooftops, but they are accumulating with the kind of quiet insistence that tends to precede louder declarations. As we noted in our last letter, we remain persuaded that the bear market in commodities— and the mirror-image boom in high-flying technology stocks—are not merely coincidental phenomena, but rather two sides of the same curious coin: the global “carry trade.” The term, coined by Lee, Lee, and Coldiron in their prescient book The Rise of Carry, refers to a structure in which the world borrows low and lends high—not merely in currency markets, but in equities, bonds, and, crucially, in the asset allocation preferences of investors writ large.
If the theory holds water—and we think it does—it follows that the immense run-up in mega-cap growth stocks, and the protracted languishing of commodity-related equities over the past decade and a half, are inextricably linked. And if that’s true, then it stands to reason that the unraveling of one side of the trade may, at long last, bring about the unraveling of the other.
A preview of this unwinding played out, however briefly, in 2022. The invasion of Ukraine sent both commodity prices and interest rates soaring, a shock that appeared—if only for a moment—to knock the carry trade off its axis. The Nasdaq 100, home to the gilded names of the technology elite, dropped 35% that year. Meanwhile, the S&P North American Natural Resource Sector Index—a reliable proxy for natural resource equities—rose nearly 30%.
It was, in hindsight, something of a false start. The forces that had governed the previous cycle quickly reasserted themselves. In 2023, the Nasdaq 100 rebounded sharply, rising over 50%, and then tacked on another 27% in 2024. Commodities and their equities, for their part, resumed their sullen torpor.
Still, we would not dismiss the episode of 2022 as meaningless. Far from it. Rather, we view it as a harbinger—a rehearsal, if you will—for a more dramatic performance still to come. The structural underpinnings of the carry trade remain vulnerable, and the pressures building beneath them are mounting. The timing is, as ever, uncertain. But the logic is firming, and the probabilities, we think, are increasingly on the side of a major reversal—with all the attendant consequences for investors on both sides of the seesaw.
Could the weakness in technology stocks during the first quarter—paired with the simultaneous strength in commodity equities—be the real beginning of the end for the carry trade? It would not be the first false alarm, of course. We saw a promising tremor in 2022, only to watch markets settle back into their old rhythms. But this time may be different. Or so the mounting evidence would have us believe.
The murmurs are growing louder. Talk of a “Mar-a-Lago-style” regime shift in monetary policy, fresh volleys in the tariff skirmishes, and the recent rally in gold—all hint at a deeper unease in the foundations of the financial order as we’ve known it. Meanwhile, commodities and their equities have begun to stir. In the first quarter, prices for raw materials firmed, even if unevenly. The Goldman Sachs Commodity Spot Index, weighted heavily toward energy barely budged—up less than half a percent. But the Rogers International Commodity Index, with a broader mix of metals and agricultural goods, rose more than 5%.
The equity markets told a similar story. Resource stocks, which had slumped in the final months of last year, rebounded. The S&P North American Natural Resource Sector Index— populated largely by the largest-cap energy names—rose about 7%. The S&P Global Natural Resources Index, with greater exposure to metals and agriculture, matched the gain.
And on the other side of the proverbial trade? Weakness. The kind of weakness one would expect, in fact, if the carry trade were indeed beginning to unravel. The S&P 500, top-heavy with the so-called “Magnificent Seven,” fell more than 4% over the quarter. The Nasdaq 100, home to the mega-cap darlings of the last decade, dropped over 8%.
Is this the true beginning of the great unwind? We cannot say for certain. But the signs— those subtle, stubborn signals the market sometimes sends before a major turn—now point in that direction. It feels, more and more, as if we are nearing the edge.
Precious Metals
Among the many eddies in the commodity markets this past quarter, few were as striking— or as symbolically loaded—as the rally in precious metals. Gold and silver, long dormant, stirred back to life in a move that commanded attention from central bankers and retail investors alike. In response to a swirl of macro forces—including President Trump’s continuing efforts to reorder not only trade policy but the global geopolitical landscape—both metals posted returns of 19% for the quarter.
The enthusiasm did not stop at the metals themselves. Equities tied to gold and silver also advanced. The GDX ETF, a benchmark for gold mining stocks, climbed more than 35%, while the SIL ETF, which tracks silver-related equities, rose a solid 25%.
Notably, central banks continued to accumulate bullion—a trend that has become something of a motif in recent years. More interesting still was the return of the Western investor. After stepping back in the fourth quarter—spooked, it seems, by a surging dollar—Western holders of physical gold ETFs came rushing back. According to our tracking of 18 such funds, net liquidations in Q4 gave way to vigorous buying in Q1, with Western investors accumulating 150 tonnes. The World Gold Council’s data suggests central banks were buying right alongside them.
Yet a curious contradiction persists—one that we view as especially bullish. Even as Western investors return to the metal itself, they remain net sellers of gold equities. In our view, this divergence—physical gold accumulation paired with equity liquidation—speaks more to positioning mechanics than to a change in fundamental conviction. And as we outline in the gold section of this letter, it may well mark the early innings of what we believe is the defining gold bull market of the decade.
North American Natural Gas
Natural gas prices in North America extended their recent strength through the first quarter, rising another 13% on the heels of a solid fourth-quarter performance. This winter, unlike the oddly warm affairs of 2022–2023 and 2023–2024, proved refreshingly normal. December was mild, January bit hard, February hovered around average, and March—true to modern form—warmed up again.
In response to these more seasonal temperatures, natural gas inventories have made a remarkable round-trip. At the end of last year’s withdrawal season, U.S. storage stood nearly 600 billion cubic feet above the 10-year average—a towering 40% surplus. But as of this writing, with the current withdrawal season drawing to a close, that excess has shrunk dramatically. Inventories now sit just 100 billion cubic feet above the 10-year average, a modest 5% surplus.
The backdrop is growing more intriguing by the week. Supply growth in the U.S. has stalled— an inflection point that often signals trouble ahead for bears. And against this tightening domestic balance looms an international pull: 6 billion cubic feet per day of new LNG export capacity is set to come online over the next 18 months. Meanwhile, international gas prices remain nearly three and a half times higher than their U.S. counterparts. The pressure for convergence is mounting.
Whether the alignment comes gradually or all at once, we believe it will happen—and likely before year’s end. For a deeper dive into the numbers, and particularly the emerging tightness on the supply side, we invite you to turn to the “Natural Gas” section of this letter.
Copper
Copper turned in a commanding performance in the first quarter, rising 25%—a standout showing amid an otherwise uneven base metals landscape. The rally was likely driven largely by mounting concerns over potential supply shortages in the United States, spurred in no small part by renewed trade skirmishes under the Trump banner. Whether this is a passing fear or a more lasting structural anxiety remains to be seen, but the market responded with conviction.
Elsewhere in the base metals complex, the picture was mixed. Zinc slipped 4%, aluminum dipped 1%, and nickel managed a modest 4% gain. Equities tied to copper more or less followed suit. The COPX ETF, which tracks copper mining stocks, rose just over 2%—a tepid move relative to the metal’s own leap. Broader base metal equities, meanwhile, faltered. The XBM ETF, a proxy for the S&P Global Base Metals Index, declined by more than 4%.
We have written in prior letters about the conflicting signals emanating from the copper market—signals that continue to demand attention. Since the dramatic short squeeze in May 2023, exchange warehouse inventories have climbed markedly, a trend that has at times seemed at odds with our own modeling of short-term supply and demand dynamics.
According to data from the World Bureau of Metal Statistics (WBMS), our models indicated that copper remained in structural deficit for most of the post-squeeze period—hardly a backdrop in which inventories should be swelling. But with the latest WBMS release, which includes data through February, the story appears to be changing. Most notably, WBMS has revised down its estimate for 2024 Chinese copper demand, replacing prior expectations of 2.5% growth with an outright decline of nearly 10%. The shift flips the market balance: copper, once presumed to be in deficit, now appears to be in surplus for the year—a more plausible explanation for the surge in exchange inventories.
We examine all of this in detail in the copper section of this letter, including our view of how these developments might shape the market as we move further into 2025.
Crude Oil
Oil prices moved without much conviction in the first quarter, caught between tightening fundamentals and indifferent investor sentiment. West Texas Intermediate slipped modestly, while Brent managed a gain just north of 1%—hardly the stuff of headlines. Energy equities, like the commodity itself, were mixed. The XLE ETF—dominated by large-cap integrated oil companies and often pressed into service as a funding vehicle in the modern-day carry trade—rose nearly 10%. The move was driven less by enthusiasm than by necessity: as technology stocks faltered, hedge funds and systematic traders were forced to unwind their short positions in XLE, which had become a convenient offset to their tech-heavy longs.
Beyond these household names, however, energy equities fared less well. The XOP ETF, which tracks the S&P Exploration and Production Index, was flat for the quarter. The Philadelphia Oil Service Index (OSX) fared worse, falling nearly 8%. Sentiment across the sector continues to be pessimistic. The energy sector’s weight in the S&P 500 is now back near its all-time low of 3%—a level last seen in the dark days of early 2020.
From a historical perspective, oil has seldom been cheaper relative to gold—a fact we explore more fully in the “Oil” section of this letter. And sentiment may be missing something far more consequential: a looming, underappreciated decline in non-OPEC supply.
We believe the stage is being set for a structural repeat of the 2003–2008 oil bull market. Then, as now, the market was gripped by bearish consensus. And then, as now, a quiet but critical shift was taking place beneath the surface. In the early 2000s, production from the North Sea and Mexico’s Cantarell field began to decline sharply—developments that caught most analysts off-guard. OPEC, in turn, seized both market share and pricing power. Oil prices rose nearly sixfold in five years.
Today, the U.S. shale patch—source of more than 80% of global non-OPEC supply growth over the last 15 years—is beginning to plateau, with signs of a broader rollover. And just as with the North Sea and Cantarell, the shift is going largely unnoticed. Outside the U.S., non-OPEC production has offered little to offset the trend.
Investor sentiment, meanwhile, borders on apathy—an apathy we believe has created a rare opportunity. For those willing to look beyond the momentary malaise, the setup in energy equities today may prove as compelling as it did two decades ago.
Uranium
Spot uranium prices softened modestly in the first quarter, easing from $74 per pound to $65. Term prices, however, remained firm—starting the year just above $80 and finishing in the same range. Far from signaling weakness, we view this as a healthy recalibration following an extraordinary multi-year run.
It’s worth remembering how far the market has come. Just four years ago, both spot and term uranium prices languished in the low $30s, a forgotten corner of the commodity complex. By early 2024, spot prices had reached $106 per pound—driven there by a wave of capital from hedge funds and institutional investors who correctly recognized uranium’s compelling supply-demand dynamics. At the peak, spot traded nearly $30 above term—a clear sign of urgency in physical buying.
Today, that relationship has reversed. Term prices have continued to edge higher, rising $8 over the past 15 months. Spot, meanwhile, has pulled back nearly $40, now trading at a $15 discount to term. To us, this is not a sign of fundamental deterioration, but of a market in transition—shedding weak hands and speculative excess to prepare for the next leg higher.
In fact, the setup today may be even more attractive than it was in 2021. The same speculative forces that once drove prices higher—hedge funds promoting the uranium supercycle— are now working in reverse, attempting to press prices lower using the very tactics that sparked the 250% rally beginning in August 2021. But this time, fundamentals are far stronger, and the market is far tighter.
Supply remains structurally short. Utility demand continues to rise. Reactor restarts and new build announcements are accelerating. Yet sentiment has turned sharply negative—a perfect contrarian signal in our view.
We examine all of this in the “Uranium” section of this letter. There, we lay out why we believe the recent softness in spot is merely a pause—and why the long-term case for uranium remains among the most compelling in the entire commodity landscape.
Agriculture
Grain prices continued their drift lower in the first quarter, with corn and wheat each falling by more than 5% and soybeans slipping just 1%. Yet beneath the surface of these modest declines lies a market that may already have put in its bottom. Given the extreme levels of trader bearishness reached at multiple points last year, we believe the lows registered in the summer of 2024 likely marked the end of the grain bear market that began back in the second quarter of 2022.
In contrast to grain prices, fertilizer markets have quietly begun to rally—an early tell, in our view, of tightening conditions ahead. Urea and phosphate prices each rose 10% during the quarter, while potash surged 25%. From their lows last summer, urea is now up 50%, phosphate up 30%, and potash up 25%. These kinds of moves are rarely isolated.
Meanwhile, the supply backdrop for grains continues to tighten. As discussed in our last letter, corn and soybean ending stocks came in much smaller than initially forecast. With the 2025 northern hemisphere planting season now underway, the focus shifts squarely to weather—and here, too, the signals are turning more supportive for prices. All three of the world’s major grain-growing regions—the central U.S., Brazil, and the vast expanse stretching from Eastern Ukraine to Western Russia—are experiencing dry spring planting conditions.
In fact, both Brazil and Eastern Europe remain in the grip of extreme drought. And in the U.S., the dryness that began last fall has persisted into the critical early planting months. Last year, the USDA significantly lowered its 2024 crop yield estimates for both corn and soybeans due to similarly dry conditions. In response, the agency slashed 2024–2025 ending stock projections for both crops by nearly 30%.
Could we be setting up for a repeat? The early signs suggest it’s possible. With planting again beginning under notably dry conditions across the U.S. heartland, the probability of another disappointing yield season is rising.
We explore this possibility in depth in the Agricultural section of this letter, where we assess how a second consecutive weather-related shortfall could mark the true turning point for grain markets—and reignite the next leg higher in prices.
Coal
Coal prices parted ways geographically in the first quarter. In the United States, prices inched higher: Central Appalachian coal rose 4%, while Illinois Basin coal notched a 2% gain. But internationally, the story was starkly different. Thermal coal prices abroad weakened considerably. Newcastle prices—representing Australian coal largely bound for Japan and China— fell 18%. Richard’s Bay, the South African benchmark supplying Asia and Europe, declined 14%.
Unsurprisingly, coal equities followed the global, not domestic, lead. The Dow Jones U.S. Coal Total Stock Market Index dropped a bruising 25%, mirroring the pullback in seaborne thermal coal.
The culprit was, by most accounts, China. A warmer-than-usual winter trimmed electricity demand, and with it, the need for coal-fired generation. Electricity produced from coal fell 4.7% year over year. To proponents of renewable energy, the numbers seemed to herald a long-awaited inflection point: the peak of China’s coal consumption, giving way at last to a renewables-led future.
We remain skeptical. As outlined in previous letters, the more a country leans into intermittent renewable energy, the more dependent it becomes on steady, base-load generation to backstop the system. The recent grid failure that blacked out large portions of Spain and Portugal may serve as a cautionary case in point.
In our view, the recent dip in Chinese coal demand owes more to transitory factors—weather and cyclical economic softness—than to structural change. All available data still point to another year of rising coal demand in 2025.
As for the equities: they’ve retreated sharply, much like the commodity itself. But history has a memory. Coal stocks, we’ve noted before, have often led the way in major commodity bull markets stretching back over a century. We see little reason to believe this time will be different. The recent pullback, in our view, presents investors with another compelling entry point.
Curious to learn more? Read more in our Q1 2025 research newsletter, available for download below.
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