Donald Trump and Republicans' victory triggers drop in commodity prices

The reactions of global financial markets have in some cases been aggressive in light of the US election results increasingly pointing to a clear victory for Trump and the Republican Party. We are close to a “Trump 2.0” or “Red Wave” scenario, with Republicans controlling both the White House and Congress., which would give them a significant advantage in key upcoming negotiations on taxes and government spending.

• Global financial markets have reacted aggressively in some cases in response to the US election results, which are increasingly pointing to a clear victory for Trump and the Republican Party.
• The results lifted the U.S. dollar to its highest level in a year, with the biggest losses among currencies being the Mexican peso, the Japanese yen and the euro.
• Overnight trading saw declines in the commodities sector, with industrial metals and grains falling amid concerns over tariffs.

The results so far have lifted the U.S. dollar to its highest level in a year, with the Mexican peso, Japanese yen and euro among the currencies that suffered the most damage. The peso and yen were particularly affected by the potential interest rate policy differential between FOMC and other major central banks.

Inflation Concerns

The US bond yield curve has undergone bear steepening, a situation in which long-term yields are rising faster than short-term yields.This comes as concerns grow that Trump’s unsecured funding sources and tax cuts and import tariffs will reignite concerns about inflation, potentially slowing the pace and depth of future U.S. interest rate cuts.

Overnight trading saw losses, with the commodity sector broadly down, with the Bloomberg Commodity Index down nearly one percent as investors began to price in the likelihood of a “Trump 2.0” scenario. It is intended to enable the introduction of announced tariffs on imported goods, particularly those aimed at China, which could trigger a new wave of trade tensions and economic disruptions..

Industrial metals, reflecting these expectations, posted some of the biggest declines, led by copper and iron ore, which are particularly sensitive to changes in trade and industrial demand. Expected tightening of trade relations raised concerns about future demand, which translated into metals markets reacting sharply to the increased uncertainty.

Agricultural goods also suffered – grain prices fell, especially variety. This reflects concerns that China could retaliate by potentially restricting exports of key U.S. crops, putting downward pressure on prices. As one of the largest buyers of U.S. soybeans, China is a key market for U.S. farmers, so any disruption in this trade flow could have significant implications for the agricultural sector.

Positive forecast for precious metals

The price of oil also fell, weighed down by concerns that a potential tit-for-tat global trade war could dent demand and further weigh on an already weak market outlook for 2025. The expected decline in demand for oil and related products is due to expectations that increased tariffs could slow global economic growth and thus reduce energy demand.The geopolitical situation will also be in focus, especially U.S.-Russia relations, Russia's war with Ukraine and the Middle East, where the Trump administration may tighten sanctions on Iranian oil exports.

Prices gold fell briefly before finding support just above the $2 level. This was due to the continued strengthening of the U.S. dollar, which is linked to markets weighing the FOMC's potential response to inflation risks. Concerns have been growing that the FOMC may take a more cautious approach to rate cuts amid concerns that tariffs and fiscal policy could reignite inflationary pressures.

Overall, the election results reinforce our positive outlook for precious metals as increased market volatility and uncertainty could fuel rising demand for these assets. However, near-term risks remain as late-stage longs could face selling pressure as the dollar strengthens and Treasury yields rise. Additionally, it is worth keeping an eye on silver, which could become a factor driving gold prices.The metal has suffered a technical collapse, reflecting the overall weakness seen in the industrial metals market.

About the Author

Ole Hansen, head of department of commodity market strategy, Saxo Bank. Djoined a group Saxo Bank in 2008. Focuses on providing strategies and analyzes of global commodity markets identified by foundations, market sentiment and technical development. Hansen is the author of the weekly update of the situation on the goods market and also provides customers with opinions on trading goods under the #SaxoStrats brand. He regularly cooperates with both television and printed media, including CNBC, Bloomberg, Reuters, Wall Street Journal, Financial Times and Telegraph.