Commodities markets have experienced a significant shockwave, with metal prices down sharply. This has reversed a winning trade for the plethora of commodity producers on the FTSE 100.
Miners including Fresnillo and Antofagasta, and oil producers BP and Shell, were pulled into the red as investor sentiment towards their sectors wanes and earnings prospects are dampened as the prices of their goods have dropped sharply in a short space of time.
Gold has now fallen 21% from its $5,594 per ounce peak on 29 January to an intraday low of $4,403 per ounce. Silver has fallen by more, down 32% since its year-to-date high less than a week ago. Copper and oil also fell in value.
Many investors bought gold and silver as protection against the volatile geopolitical backdrop, yet they’ve learned the hard way these assets can also be volatile themselves.
A lot of investors bought funds tracking baskets of gold and silver miners over the past year, believing that miners’ value rises by a greater amount than metal price appreciation. While that can be true, the same applies on the way down, with miners typically underperforming falling gold and silver prices.
For example, between March and November 2022, when gold fell around 20%, the S&P Commodity Producers Gold index of mining companies fell nearly 40%. Equally, between October 2024 and the end of that year, when gold slipped around 6%, the basket of gold miners was down nearly 18%.
There are many theories as to why gold and silver have fallen so dramatically in recent days. One is that metal prices went up too far, too fast, and we’re now seeing the market lose the froth and return to normality.
Certain people bought gold because they were worried about a potential loss of Federal Reserve independence as Trump called for a much lower cost of borrowing. Trump surprised the market last week by nominating Kevin Warsh as the new Fed chair, an individual with hawkish tendencies and who might not favour rapid and sharp interest rate cuts.
Having been weak for some time, the US dollar regained strength on his nomination. A stronger US dollar makes gold more expensive for buyers using other currencies, thus dampening its appeal. Warsh is also seen as having the qualities to help preserve the independence of the Fed, another relief for markets and another headwind for gold.
There are other factors influencing commodity markets. Derivatives marketplace operator CME has raised margins on gold and silver futures, meaning anyone trading those assets will need to put up more collateral. This could force out speculators who cannot afford to put up more money as a deposit, potentially leading to contracts being closed and explaining why people might now be heading for the exit at the same time.
The sharp sell-off in gold and silver-related assets threatens to weigh on investor sentiment globally. It also doesn’t help that the big tech stocks in the US have gone from being responsible for strong market gains to being the epicentre of worries around excessive spending. Wall Street futures imply a bad day for the tech-heavy Nasdaq index when US markets open later today.
In an environment where gold and silver assets haven’t proved to be as reliable havens as some people hoped, and many tech stocks having run out of steam, the natural place to hide is defensives.
For some investors, a slice of toast and Marmite, and a headache tablet is just the job when markets are in a spin. For others, buying the companies that sell these goods is also a much-needed tonic. That’s why shares in consumer goods groups Unilever and Reckitt, healthcare products specialist Haleon, and various Coca-Cola bottling companies were in vogue on the UK market. In theory, their sales could be ticking over regardless of what’s happening on financial markets.
AI / Technology: Nvidia, OpenAI, Oracle
The weekend saw shots fired as the battle ramps over AI chips. Nvidia has enjoyed a dominant position up until now, but the emergence of custom-made chips for some of its major hyperscale customers has prompted speculation about this position being surrendered.
In perhaps the ultimate example of ‘well he would say that, wouldn’t he’, Nvidia boss Jensen Huang pushed back against this narrative – arguing the company’s ongoing investment in R&D and already substantial scale and expertise create a meaningful barrier. Huang’s argument that it was ‘ok’ for firms to experiment with custom chips felt like a pat on the head for the competition.
The chat will only ramp up the stakes ahead of Nvidia’s quarterly earnings later this month, with its shares having essentially gone nowhere since its third-quarter earnings in November.
Another factor which has reportedly stalled is Nvidia’s previously announced $100 billion agreement with OpenAI to help it train and run its latest AI models.
Insiders at Nvidia have apparently expressed some concern about the deal, with OpenAI facing its own competitive pressures as rivals emerge for the once-dominant ChatGPT.
Whether these concerns will affect the prospects for an OpenAI IPO at some point this year remains to be seen but the concerns about the company and its prospects are prompting a negative read across at Oracle.
While most tech businesses are investing heavily in AI infrastructure, many of them are doing so from a position of balance sheet strength. Oracle is loading up with debt for its own splurge, with the cost of insuring against a default on these borrowings surging at the back end of last year.
The perception is that Oracle’s fortunes are now heavily tied to OpenAI and combined with the company’s plans to raise up to $50 billion to invest in 2026, nervousness about the situation looks unlikely to go away any time soon.
Russ Mould: Investment Director
Russ Mould is AJ Bell's Investment Director. He has a Master's degree in Modern History from the University of Oxford and more than 30 years' experience of the capital markets.
He started out at Scottish...
