Commodities caught between AI jitters and escalating energy risks

Commodities are becoming increasingly fragmented, but supply constraints and geopolitical risks keep broad tactical exposure relevant despite weakening growth-sensitive demand.

• Copper fell 2.4% below USD 6.50 per pound as a Nasdaq decline of more than 500 points revived concerns about AI investment and US tariffs on refined copper, although electrification, grid expansion, constrained mine supply and US inventory concentration support its physical fundamentals.
• Brent crude rose above USD 112, a five-month high, as Middle East tensions, shipping attacks, elevated freight costs and threats to energy infrastructure increased the risk of renewed supply disruptions; European gas near EUR 90 per MWh remains exposed to low storage, cold weather and LNG interruptions.
• Gold has struggled below USD 4,100 for the third time this month, with speculative selling offsetting strategic demand: managed-money net longs fell by 4 million ounces since 25 August while bullion-backed ETF holdings increased by 2.3 million ounces.
• The Bloomberg Grains Index dropped 14% over six weeks, while managed-money net longs across six major grain and soybean futures contracts fell from more than 1 million to about 750,000 as harvest pressure and better supply expectations encouraged liquidation.
• Commodities can hedge inflation, geopolitical disruption and extreme weather, while backwardated futures may add positive roll returns; however, contango, weaker global growth, Middle East de-escalation, higher real yields or favourable harvests could reverse the thesis.

Takeaway: The author favours broad commodity exposure, especially where demand growth meets persistent supply constraints, but stresses that benefits are tactical rather than guaranteed and require balancing sector-specific upside against sharp reversal risks.