US-China Trade Optimism Drives Commodity Markets: Bullish Cycles Ahead?

The U.S.-China tariff truce announced on May 12, 2025, has reignited hopes of a thaw in the world’s most critical geopolitical relationship. With tariffs slashed to historic lows—145% to 30% for the U.S. and 125% to 10% for China—the 90-day “pause” offers a lifeline to global commodity markets. This truce, however, is far from a permanent solution. Yet, for investors, it is a catalyst to reposition portfolios toward cyclical assets poised to benefit from de-escalation. Here’s why energy and metals are primed to outperform—and why gold’s allure is fading.

The Trade Truce: A Catalyst for Demand Reacceleration

The immediate market reaction was unequivocal: global equities surged, bond yields rose, and commodity prices stabilized. But the truce’s true impact lies in its potential to unshackle supply chains and revive manufacturing activity. For energy and industrial metals, this is a game-changer.

Crude oil prices had plummeted to four-year lows earlier this year amid OPEC+’s aggressive output hikes and the U.S.-China trade war. The tariff rollback now offers a reprieve. With tariffs reduced, Chinese refineries can again import U.S. crude without punitive costs, while American manufacturers gain access to cheaper Chinese inputs. This bilateral demand boost could counterbalance OPEC+’s May production surge of 411,000 bpd.

OPEC+’s Dilemma: Accelerating Output vs. Demand Resurgence

OPEC+’s decision to accelerate production cuts unwinding—despite weak demand—has been a headwind for oil. However, the truce introduces a wildcard: if U.S.-China trade normalizes further, global oil demand could rebound by 0.5–1.0 million bpd by year-end. Investors must monitor OPEC+’s June 1 meeting closely; if the group pauses its output hikes in response to improving demand signals, prices could rally sharply.

Industrial Metals: The Trade Truce’s Direct Beneficiaries

Copper, the “commodity with a PhD,” is already pricing in optimism. With China’s manufacturing PMI likely to rebound, copper demand for infrastructure and green energy projects should surge. Aluminum, similarly tied to automotive and construction, stands to gain as U.S. automakers source cheaper Chinese inputs.

The truce’s removal of tariffs on metals, machinery, and semiconductors creates a “virtuous cycle”: lower costs for manufacturers → higher output → stronger commodity demand. For investors, ETFs like the Global X Copper Miners ETF (COPX) and VanEck’s Aluminum ETF (ALUM) are leveraged to this theme.

Gold: The Victim of Risk-On Sentiment

Gold’s recent underperformance is no accident. With equities rallying and geopolitical fears easing, the metal’s safe-haven appeal has waned. The truce reduces near-term volatility, diverting capital away from gold toward risk assets.

While gold may find support if the truce fails, the current environment favors underweighting it.

Iran Nuclear Talks: The Wildcard Risk

The U.S.-Iran talks remain a critical overhang. A deal could unleash 1–2 million bpd of Iranian crude into global markets, overwhelming even a U.S.-China demand rebound. Conversely, failure could escalate tensions, disrupting Middle East oil flows. Investors should hedge energy exposure with short positions in Iran’s oil export data or consider geopolitical risk premiums.

The Investment Thesis: Overweight Energy, Metals; Underweight Gold

• Energy: Buy energy equities (e.g., Exxon Mobil, Chevron) and ETFs like the Energy Select Sector SPDR (XLE). Monitor OPEC+’s June decision for catalysts.
• Metals: Deploy capital in COPX and ALUM, with a focus on copper miners (Freeport-McMoRan) and aluminum producers (Alcoa).
• Gold: Reduce holdings in GLD; rotate capital into risk assets.

The 90-day tariff truce is a fragile hope, but markets are forward-looking. For now, the path of least resistance favors cyclical commodities. Investors who act swiftly can capture gains as global trade normalizes—but must remain vigilant to geopolitical twists.

Act now before the window closes.