Commodities and Economic Cycles: Signals from 2025

Commodities and Economic Cycles: Signals from 2025

Strong precious metals and weak energy: a cooling cycle that resembles 2000 more than 2007

Current commodity outlook (August–September 2025)

• Energy index down: according to the World Bank’s Pink Sheet, in August the energy index (2010=100) fell to ~88 (−3.9% m/m), with Brent averaging around $68/bbl and U.S. natural gas also declining.
• Metals and minerals remained stable (index ~110), while precious metals stayed robust (index ~253).
• Agrifood: the FAO Food Price Index stood at 130.1 points in August, flat m/m and +6.9% y/y, but still ~19% below the March 2022 peak. Grain supply prospects for 2025/26 are described as “comfortable.”
• Energy vs. historical peaks: to contextualize, in July 2008 Brent averaged above $130/bbl—far higher than current levels.

U.S. macro: growth, inflation, and interest rates

• Growth: in Q2 2025 U.S. real GDP grew +3.3% q/q annualized (after −0.5% in Q1).
• Inflation: CPI rose +2.9% y/y in August (core +3.1%).
• Monetary policy: on September 17, 2025, the FOMC lowered the fed funds target to 4.00–4.25%.
• Output gap and potential: CBO assessments indicate the economy is near potential in 2024–25, with any gap expected to close gradually in the medium term. The official real potential GDP series (GDPPOT) remains the benchmark for calculating the gap.

How commodities move with the cycle (today vs. 2000–01 and 2007–08)

2007–08 (pre-GFC)

• Strong global demand and positive output gaps in advanced economies; energy and metals rallied until oil peaked in July 2008, before collapsing as the global recession took hold.

2000–01 (pre-dot-com bust)

• Positive output gap in 2000, Fed tightening in ’99–2000, then reversal with slowdown and broad correction in cyclical commodities (energy and metals), while gold only later acted as a defensive asset. (Picture reconstructed from official real GDP and CBO/FRED potential GDP series).

2025 (today)

• Mixed signals:
• Weak energy (Brent ~$68–71/bbl early summer, down in August) → suggests subdued global demand and no persistent supply shocks.
• Flat industrial metals (index ~110) → consistent with modest but not recessionary global growth.
• Strong precious metals (index ~250+) → typical of macro/financial uncertainty and expectations of lower real rates.
• Stable food relative to 2022 highs → less pressure from the food channel.
• U.S. macro: inflation close to 3%, the Fed starting a “managed” easing cycle, and growth oscillating around potential with the output gap near zero—neither overheated nor clearly underutilized.

Analogies and differences (signals to read)

• Not 2007–08: back then energy and metals rallied together on exceptional demand; today weak energy + strong precious metals point more to slowdown and hedging than to overheating.
• Closer to 2000–01… but with cushions: like in 2000, the output gap is not negative and monetary normalization is underway (now downward, not upward). Industrial metals do not “price in” a boom; yet inflation is higher than in 2001 and the Fed is cutting (not hiking), reducing the risk of pro-cyclical tightening.

What could signal (or avert) a crisis

Indicators to watch (with current reading):

1. “Energy down / precious up” divergence – historically tied to slowdowns or risk-off phases rather than overheating: present today.
2. Output gap ~0 and inflation ~3% – a lukewarm scenario: a negative growth surprise could push industrial metals lower; a sharper inflation decline with falling real rates could further support precious metals.
3. Monetary policy – the Fed’s cut to 4.00–4.25% signals risk management and cycle awareness: it softens parallels with 2000–01 (when rates were rising) and 2007–08 (when cuts came only after the shock hit).
4. Stocks and agricultural fundamentals – the FAO sees rising grain stocks-to-use and “comfortable” supply conditions: a buffer against global food shocks.

Summary

The mosaic of official data points to an intermediate scenario:

• Cyclical commodities (energy, base metals) do not suggest global overheating as in 2007–08;
• Precious metals express macro/financial caution consistent with a cooling cycle and expected lower real rates;
• Agrifood remains manageable thanks to supply conditions, reducing risks of renewed food-driven inflation;
• The U.S. economy sits near potential, with ~3% inflation and the Fed easing prudently.

In short, today’s patterns resemble 2000–01 (pre-slowdown) more than 2007–08 (pre-shock), but with two key differences that reduce the risk of a deep crisis: (i) absence of acute energy tensions and (ii) monetary policy already in easing mode. Vulnerabilities remain (sluggish global growth, financial sensitivity), but the current data set does not “price in” an imminent global recession. Instead, it points to a softening cycle with intra-commodity rotation (precious strong, energy weak), consistent with an economy near potential yet cooling.