The market is currently dominated by the 'Trump trade'. The news of Trump's victory has pushed up the US dollar, US stocks, and cryptos, but at the same time, the market is starting to price in the risk of tariff policies, leading to a general decline of 1-5% in crude oil, gold, and copper.

Overnight, the 'leader' gold in commodities plummeted by 3%, while silver and London copper both dropped by over 4%. What will be the future trend of commodities?

Citi predicts in its latest research report that Trump's return will hit oil prices, with Brent crude expected to fall back to $60 per barrel by 2025. In the short term, gold may weaken due to the strength of US stocks and AI trading, but the drivers of the gold bull market still exist. It is recommended to bottom fish below $2700 per ounce and the 6-month target price remains at $3000.

For other metals, Citi believes that the medium-term prospects of base metals are relatively uncertain, and future trends may depend more on China and trade developments. Therefore, they adopt a neutral attitude towards base metals.

The short-term weakness of precious metals does not affect the long-term trend. Buy gold on the dips.

Citi points out in the research report that historically, gold usually performs poorly after the US presidential elections. Taking Trump's entry into the White House in 2016 as an example, gold fell by 8% within a month. However, this trend provides investors with buying opportunities on dips, and it is still believed that the gold price will rise to $3000 per ounce in 6 months.

The structural drivers of the gold bull market still exist, including the high-interest rate environment in the USA, the continuously deteriorating labor market, and the continuous growth in global gold ETF demand. In addition, the continuous expansion of global debt levels and the de-dollarization process also provide support for gold. Citi believes that central banks around the world may continue to purchase gold in large quantities.

From a trade perspective, Trump's proposed tariff policy may suppress US economic growth, similar to 2019, increasing the allocation of gold assets and possibly causing the gold price to rise. Citi pointed out that given silver's relatively high positive beta coefficient to global economic growth, the trend of silver may be somewhat affected by the trade situation.

Trump's return will impact oil prices.

Citi recommends oil producers to reduce exposure to Middle East risks in the next one to two months. It is expected that after Trump takes office, oil prices may come under pressure, with Brent crude prices projected to average $60 per barrel in 2025.

Ahead of Trump's return, the situation in the Middle East may escalate further, leading to drastic fluctuations in oil prices. As Trump reclaims the White House and the Republicans secure a majority in the Senate, Brent crude prices have already begun to decline. Citi believes Trump's new term may bear bearish implications on the oil market, creating pressure on oil prices in 2025, despite the risks posed by political and sanction policies.

The impact of Trump's tariff policy will have a negative effect on the global economy. Citi's simulation data shows that a 10% tariff imposed by the US on other countries will lead to a global GDP reduction of 0.4% to 0.6%. This further weakens the growth in global market demand for oil, especially diesel demand. Trump may also influence the oil market trend by affecting OPEC+'s production decisions.

Tariff policies are the major 'headwinds' for base metals, with a mid-term outlook focusing on China.

Citi pointed out that following Trump's election and the Republican 'red wave', the market immediately factored in the risk of tariff policies, leading to a sharp decline in base metal prices. Therefore, the base metal market is currently in a 'wait-and-see mode'.

The bank believes that the mid-term trend of base metals will depend on China and how the trade situation develops. In their baseline scenario forecast, copper prices are expected to rise to $11,000 per ton in the second half of 2025, while aluminum prices will reach $2,900 per ton in the second half of 2025. This is due to the Fed rate cuts, China's loose policies, and the expected support for a global manufacturing cycle recovery due to the fall in oil prices. Additionally, the growth in demand related to decarbonization will also support metal prices.

Editor/Rocky