Global Commodity Markets Face Volatility Amid Geopolitical Tensions and Economic Shifts

Global Commodity Markets Face Volatility Amid Geopolitical Tensions and Economic Shifts

As of June 21, 2025, global commodity markets are experiencing significant volatility, influenced by a combination of geopolitical tensions, economic policy changes, and shifting supply-demand dynamics.

Oil Prices React to Middle East Unrest

Oil prices have been particularly sensitive to developments in the Middle East. Futures linked to Canada’s S&P/TSX index rose 0.2% following the U.S. decision to delay direct involvement in the Israel-Iran conflict. President Trump is expected to announce his decision within two weeks, while diplomatic efforts continue in Geneva. Investors are also monitoring Canadian retail sales data to assess consumer resilience amid these tensions. Despite a slight dip in the S&P/TSX composite index due to risk aversion, the index is poised for a fourth consecutive weekly gain, supported by rising crude prices and demand for safe-haven assets like gold. On Friday, oil prices eased but still pointed to a third weekly advance, while gold and copper continued their decline. TSX futures rise as US delays decision on direct Mideast involvement

Gold Prices Surge Amid Economic Uncertainty

Gold prices have reached new heights, driven by economic uncertainties and geopolitical risks. Goldman Sachs has raised its year-end target for gold to $3,300 per ounce, with a potential peak of $4,500 in extreme risk scenarios. This surge reflects investors’ flight to safe-haven assets amid global market instability. Gold rate today: Goldman Sachs raises year-end target to $3,300; predicts $4,500 peak in extreme risk case

Base Metals Face Supply-Demand Imbalances

Copper smelters are grappling with a significant market and pricing crisis, as they are now paying miners to process copper concentrates due to negative treatment and refining charges (TCRC). Traditionally a revenue source for smelters, TCRC has remained negative in both spot and mid-year negotiations, reflecting an imbalance driven by excessive smelting capacity, particularly in China. While global mine production has grown modestly, it cannot keep pace with new processing facilities, leading to a supply-demand mismatch. Though by-products like sulphuric acid and precious metals offer some financial relief, copper is no longer the primary income stream for smelters. China’s aggressive expansion of its smelting sector has inflated refined copper production, while tightening margins have already forced some Western smelters to halt operations. Compounding the problem, countries like Indonesia are halting concentrate exports, worsening supply conditions. The current pricing model—reliant on annual or semi-annual contracts—appears outdated, as it fails to adapt to market volatility. There is growing pressure to shift towards more dynamic pricing mechanisms, such as quarterly or spot pricing, to better reflect real-time supply-demand conditions and prevent further financial strain on smelters. Copper smelters are facing both market and pricing crises

Trade Agreements and Tariffs Impact Agricultural Commodities

Indonesia is poised to sign a free trade agreement (FTA) with the Russia-led Eurasian Economic Union (EAEU) in 2025, aiming to enhance its commodity exports such as crude palm oil, coffee, and natural rubber. Coordinating Minister for Economic Affairs Airlangga Hartarto confirmed that substantive negotiations have concluded, and both parties are now working to finalize the remaining process steps. The FTA is expected to significantly benefit Indonesia by opening new markets for key exports. Indonesia-EAEU trade reached $1.6 billion as of March 2025, an 85% increase from the previous year. In 2023, the EAEU imported $544.64 million worth of Indonesian palm oil, while its main exports to Indonesia include fertilizers and ferro-alloys. The announcement of the completed FTA discussions coincided with President Prabowo Subianto’s visit to Russia and a meeting with President Vladimir Putin. The EAEU comprises Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. Indonesia expects to sign free trade deal with Russia-led union this year, minister says

Market Outlook

Looking ahead, the World Bank’s latest Commodity Markets Outlook forecasts a significant decline in global commodity prices over the next two years due to weakening global growth and rising trade barriers. Prices are expected to drop 12% in 2025 and a further 5% in 2026, returning to pre-COVID-19 levels observed from 2015 to 2019. While this trend may help moderate near-term inflation—previously driven by high energy prices and supply chain disruptions—it poses challenges for developing economies reliant on commodity exports. Chief Economist Indermit Gill highlighted the risks of high price volatility and urged developing nations to liberalize trade, strengthen fiscal discipline, and foster private investment. Energy prices, including Brent crude oil and coal, are expected to decline significantly due to ample supply and decreased demand, notably from increased electric vehicle use in China. Food prices are also forecasted to fall, though this is unlikely to alleviate food insecurity in conflict-affected regions. In contrast, gold prices are projected to hit a new record in 2025 amid global uncertainty, before stabilizing in 2026. World Bank sees commodity prices falling to pre-COVID levels

In summary, the commodity markets are navigating a complex landscape shaped by geopolitical developments, economic policies, and evolving supply-demand dynamics. Stakeholders must remain vigilant and adaptable to manage the risks and opportunities presented by this volatile environment.