Bloomberg Professional Services
This article was written by Jim Wiederhold, Commodity Indices Product Manager at Bloomberg.
In the second quarter, the commodity markets experienced a significant uptick in volatility, marking the most turbulent period in three years for the Bloomberg Commodity Index (BCOM). After a calm first quarter, average 30-day historical volatility jumped to 16%, driven by geopolitical risks, fundamental supply-demand shifts, and investor sentiment. The heightened volatility coincided with a broader dispersion of returns across commodity sectors, highlighting the role of underlying fundamentals for each market.
Precious metals and livestock rose while energy and softs retreated after strong performances in the first quarter. Grains and industrial metals delivered mixed results, hovering near flat. Although market sentiment played a role, sector-specific developments were the primary drivers as fundamentals were front and center.
Precious metals experienced increased market attention in Q2 with gold reaching new all-time highs. As is often the case during such rallies, the rest of the complex followed gold’s lead in a classical laggard pattern. Silver broke out to 13-year highs, while platinum nearly breached 10-year highs. Palladium gained momentum later in the quarter and is up 21% year to date. The catalyst for the bullish momentum in precious metals came from the tariff-related tensions that drove investors to safe-haven assets. This phenomenon was discussed in detail in the “A golden rise and a silver lining” article. Exhibit 1 shows the fundamental story is supportive of prices with the platinum market in a supply deficit the last two years and expectations for this to continue through 2026 according to Bloomberg Intelligence.
Livestock was the second-best performing in Q2, with the sector rising 14% and capping a strong first half of 2025. This sector is typically the smallest weight in the Bloomberg Commodity Index (BCOM). Live cattle made new all-time highs in June while lean hogs seem to be on a similar path toward the all-time highs made ten years ago. A combination of smaller herds, rising feed costs, stronger beef and pork demand, and seasonality (more beef is eaten on Memorial Day in the US than any other day of the year) played a role in the steady rise in livestock prices since the start of April. Over the last five years, livestock has traced a similar path higher to precious metals. Five years ago, both sectors lagged the others until the middle of 2024 when they started to rise from behind the pack. Exhibit 2 shows livestock has also been much less volatile in recent years compared to the other major commodity sectors of BCOM.
After a strong Q1, the energy sector reversed course in Q2. Crude oil drew headlines, but natural gas saw the sharpest move, falling 22% for the quarter and ending flat for the year. The magnitude of the moves can be expected with natural gas prices tending to be the most volatile among the 24 constituents of BCOM. The overall bearish mood in energy was kicked off by oversupply concerns when OPEC announced production increases. Oil spare capacity and reserves are ample to meet demand. Net long positioning by futures traders in WTI crude oil dropped to 10-year lows on the back of economic growth concerns leading to lower energy demand projections. Despite the fundamental headwinds, geopolitical risk caused price spikes toward the end of the quarter when Israel and Iran started missile attacks on each other. Crude oil prices went on a brief rollercoaster ride higher as concerns the Strait of Hormuz may be shut following the attacks. The threat of conflict in the Strait of Hormuz—a critical chokepoint through which approximately 21 million barrels per day of oil flows—sparked fears of potential supply disruptions as seen in the Exhibit 3 chart.
Industrial metals and grains both finished the quarter down slightly, but industrial metals are still up 8% for 2025. Copper has driven most of the positive performance on the back of positive tailwinds of increasing use in global energy transition technologies. Copper is a major input to electric vehicles. Copper also experienced increased demand from stockpiling earlier in the year ahead of tariffs. Grains were the worst performing sector in 2025 down 5% amid ample crops and shifting global demand. Grains prices have been on a steady decline since the price spikes of 2022 and are near cost of production lows which could be a catalyst for a reduction of supply going forward.
Q2’s diversified sector performance underscores the importance of a diversified approach within commodities such as in the broad-based BCOM index. Precious metals offer defensive attributes, livestock capitalized on cyclical supply-demand imbalances, and energy reflected the tension between geopolitical risks and overcapacity. Overall, the commodities asset class is continuing to benefit from positive tailwinds this decade as fundamentals are playing a role across sectors.
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