In a world fragmented by tariffs, loss of global trade treaties and a fiscal expansionary Europe & China combined with a weakening US consumer profile & fading US exceptionalism, we find it extraordinary difficult to predict commodity road maps for even short term. While we also initially thought the tariff tactics of Trump were transactional in nature, now we are moving to the camp where we think it is actually transformational in nature. The aim of tariffs is to permanently reduce US trade deficit & get back manufacturing to US. The problem is not just US tariffs. How individual nations respond to these tariffs is also unique in nature. And then one has to superimpose all these tariff decisions over one another to figure out the net impact on commodity prices. A tariffed world will lead to commodities finding itself priced higher in the host country & lower in other importing countries in the short term. But as higher prices lead to demand destruction in the host country in the medium term, the host country prices fall vigorously. In general, a fragmented world leads to higher shipping costs, loss in efficiency & a more volatile pricing environment across commodities. Based on our above assumptions, we remain most bullish on Silver, then neutral on base metals such as Copper & finally most bearish on Crude.
