Commodities’ Powerful Start Amid Global Shifts

Market Overview: a Strong Start for Commodities

Commodity markets posted strong gains in the first quarter of 2025, supported by a declining U.S. dollar, persistent geopolitical tensions, and shifting trade policies. The Trump Administration’s emphasis on reciprocal tariffs has introduced new uncertainty to global trade, prompting some market participants to stockpile commodities in anticipation of future supply disruptions.

All major commodity sectors advanced during the quarter, with precious metals as the top performer. Industrial metals and energy also saw meaningful gains, benefiting from both supply concerns and policy-driven demand.

Index Performance: Benchmark Divergence

The UBS Constant Maturity Commodity Index (CMCITR) rose 5.1% in Q1, underperforming the Bloomberg Commodity Index (BCOM), which gained 8.8%. This divergence was primarily driven by differences in sector allocation.

CMCITR maintains a lower weighting in both precious metals and U.S. natural gas, which were two of the quarter’s strongest areas. Gold and silver each gained 18%, while U.S. natural gas surged 27% during the period.

CMCITR takes a disciplined approach by rebalancing monthly to maintain its target weightings, whereas BCOM allows its top-performing sectors to run without rebalancing. While this can lead to short-term outperformance for BCOM during strong market trends, CMCITR’s structured approach has historically supported stronger relative performance over the long term. In addition, CMCITR’s unique roll methodology, applied throughout the year, further enhances its performance relative to BCOM by optimizing how it handles futures contracts.

Sector Drivers and Strategic Takeaways

Precious Metals: Strong Demand in a Flight to Safety (+18.2%)

Gold and silver both surged 18% in Q1 2025, making the precious metals sector the top performer for the quarter. Ongoing global uncertainty — from geopolitical tensions to shifting trade alliances — has renewed investor interest in traditional safe-haven assets. Global central banks continued to increase their gold holdings, looking to diversify away from U.S. dollar assets. At the same time, Western investors began moving into gold and silver as a hedge against volatility and broader macro risks.

Industrial Metals: Policy-driven Rally Led by Copper (+7.5%)

The industrial metals sector posted solid gains, rising 7.5% for the quarter, supported largely by policy-driven market behavior. The Trump Administration’s tariffs on steel and aluminum, coupled with expectations of reciprocal measures from global trading partners, led to a wave of stockpiling across key markets. Copper stood out, rallying 25% and reaching new all-time highs, as investors anticipated tighter supply conditions and steady demand growth.

Energy: Geopolitical Pressures and Cold Weather Lift Prices (+4.4%)

The energy sector climbed 4.4% in Q1 as geopolitical conflicts and seasonal demand drove prices higher. Ongoing wars in the Middle East and Ukraine maintained a risk premium in oil markets, even as OPEC announced plans to boost production. In the final weeks of the quarter, President Trump’s threat of additional tariffs on buyers of Russian oil added further upward pressure to crude prices. Meanwhile, an unusually cold winter across the U.S. fueled a 27% spike in natural gas prices.

Agriculture: Mixed Results Weigh on Overall Performance (+1.2%)

Agricultural commodities had a muted quarter, ending up 1.2%, with mixed performance across subsectors. Coffee prices saw a sharp rally, rising 25% on supply concerns, but these gains were largely offset by a 23% decline in cocoa. U.S. grain prices also softened modestly, reflecting stable supply expectations and a lack of weather-driven catalysts.

Livestock: Steady Gains Driven by Cattle Prices (+4.3%)

The livestock sector delivered a solid return of 4.3% in Q1. Live cattle prices led the way, rising 7.8% on tighter supply and strong domestic demand. However, the sector’s overall gains were partially held back by a 2.3% decline in lean hog prices.

The chart below highlights the sector weight differences between CMCITR and BCOM.

CMCITR Rebalances Monthly to Fixed Annual Targets, While BCOM’s Weights Adjust With Market Movements.

Comparative Index Sector Weights

Source: VanEck, Bloomberg. Data as of March 2025.

Outlook: Commodities Positioned for an Active Year Ahead

With a strong start to 2025, the commodity market enters the second quarter with several tailwinds still in place. Geopolitical risks, shifting trade dynamics, and a weaker U.S. dollar continue to support demand for real assets—particularly in sectors such as precious metals and energy. At the same time, supply disruptions, policy-driven market shifts, and variable weather patterns are likely to keep volatility elevated across key segments, presenting both risks and opportunities.

In this environment, a diversified and disciplined strategy—like that of the CMCITR —may prove especially valuable. Its monthly rebalancing and dynamic roll methodology help manage exposure through changing market conditions, positioning it to navigate uncertainty while capturing long-term trends.

As investors look to hedge against inflation and broader market volatility, commodities remain a relevant and potentially rewarding component of a well-balanced portfolio. The remainder of 2025 may offer a compelling backdrop for selective, active allocation within the asset class.