War, AI and a Weaker Dollar Ignite an Unusual Commodities ‘Everything Rally’

Oil, Copper Drive Biggest Commodities Surge in 18 Years

Broad Commodity Price Gauge Jumps to Highest Since Global Financial Crisis

Middle East War, AI-Driven Copper Spike, Dollar Skepticism Fuel Gold Buying

From Grocery Prices to Interest Rates, Commodities Re-Emerge as Economic Risk

Global commodity markets have entered what would be the sixth “super rally” since World War II, with prices for oil, metals and grains climbing to their highest levels in 18 years.

The FTSE Commodity CRB Index, a broad gauge of raw-material prices, rose to 423.11 on Sept. 9, according to London Stock Exchange Group data. That marks a 42.0% jump from 297.82 at the start of the year and the highest level since the 2008 global financial crisis.

Since the index was created in 1957, there have been six major rallies in which it gained more than 30% within a year. Those episodes included the Soviet Union’s large-scale grain purchases in 1972 and the Iranian Revolution in 1979. In 2002, China’s entry into the World Trade Organization helped drive another rally through a broad expansion in global demand.

This rally is structurally different. Multiple forces are driving it at once, from Middle East tensions and US tariff policy to artificial-intelligence data centers. After the US attacked Iran on Feb. 28, the Strait of Hormuz was effectively blocked. As attacks between the US and Iran resumed recently, Brent crude futures moved back above $100 a barrel. Rising global investment in AI is also adding pressure. Copper, used in data centers, power grids and electric vehicles, climbed to a record $14,767.5 a ton on the London Metal Exchange on Sept. 9. Aluminum and other industrial metals also surged as buyers moved early ahead of US tariffs.

The commodities rally is already reshaping the global inflation outlook. The International Monetary Fund raised its forecast for world inflation this year to 4.7% in July from 4.4% in April.

Japan’s Nikkei said higher commodity prices are complicating monetary policy in major economies and weighing more heavily on Asian countries such as Japan that depend on imported resources.

A Sixth Rally Since World War II — and Why This One Is Different

Stabilizing Prices Will Require a More Complex Fix: Peace, More Oil, More Mine Investment

Global commodity markets are again emerging as a central variable for the world economy. The FTSE Commodity CRB Index, which tracks moves across oil, metals and grains, is approaching its record high of 474 set in 2008. This time, unlike in past rallies, the advance is being driven by several forces at once. That means any path to stabilizing prices will also be more complicated.

A More Complex Mix of Drivers

The CRB Index was first calculated in 1957 by the US Commodity Research Bureau using 28 commodity contracts. The current version is made up of 22 items, with energy accounting for 39%, agricultural products 41%, industrial metals 13% and precious metals 7%. Crude oil alone makes up 23% of the index. That helps explain why most commodity rallies in history were rooted in oil.

This time, the picture is broader. As of Sept. 9, Brent crude futures were trading around $101 a barrel. That is below the level immediately after the Strait of Hormuz blockade, when prices topped $120. But copper, aluminum, gold, silver and natural gas have all climbed together, pushing the index higher. Copper futures are up more than 47% over the past year. Gold has risen more than 20% from a year earlier, while silver has gained more than 50%. European natural gas prices, based on the TTF benchmark, recently neared $23 per million BTU, almost double the level seen before the US-Iran war.

Past commodity rallies were usually driven by one or two core factors. The first began in 1972, when large grain purchases by the Soviet Union sent food prices sharply higher. The following year, the Fourth Middle East War prompted Arab oil producers to impose an embargo and cut output, spreading the rally into energy. In the second rally, in 1979, the Iranian Revolution caused oil prices to double and also sent gold and silver sharply higher.

Most Rallies Ended in Recession

During the third rally, in 2008, the CRB Index reached a record high. Oil surged above $140 a barrel. The move was heavily tied to the so-called emerging-market supercycle that followed China’s entry into the WTO in 2002. The fourth rally was shaped by global quantitative easing in 2009, China’s large-scale stimulus and the Arab Spring in 2011. The CRB Index climbed back to 370 in April 2011. In the fifth rally, the post-pandemic explosion in global demand coincided with Russia’s invasion of Ukraine, pushing the index back above 300 in June 2022. In every rally, surging commodity prices fed inflation, while governments and central banks responded only after the fact. Prices later fell as steep interest-rate increases weakened demand and tipped economies into slowdown.

This time, the closure of the Strait of Hormuz during the Iran war and the jump in oil prices pushed the CRB Index from 323 in January to above 400 in May. The spread of AI use and broader electrification tied to decarbonization have sharply increased demand for copper used in data centers and electric vehicles. Gold and silver have risen as the dollar’s value has come under pressure. Demand for alternatives to dollar-denominated assets has increased, fueling a sharp rise in gold buying led by China.

What Could Bring Commodity Prices Back Down

Oil remains the biggest variable. The US Energy Information Administration said recently that Middle East production and trade could return to average prewar levels in the second quarter of next year as rerouted crude shipments and export recovery take hold. Under that scenario, average Brent spot prices would fall to $67 a barrel in the second half of next year.

Goldman Sachs said Brent could rise above $120 a barrel if Middle East tensions continue into next year and regional oil production remains 4 million barrels a day below prewar levels.

For copper, the war matters less than AI and electrification. Data centers consume large amounts of copper not only in servers, but also in substations, distribution networks, cooling systems and backup power supplies.

New mine development takes time, so supply tends to respond slowly even when prices rise. Gold prices will track the dollar’s value and monetary policy in major economies.

Gold is benefiting from haven demand tied to a weaker dollar. But gains may be capped if inflation pushes up long-term government-bond yields, reducing the appeal of a non-interest-bearing asset.

Kim Ju-wan and Oh Se-sung, Hankyung.com reporters

kjwan@hankyung.com