Commodity Markets in 2026: Assessing the Structural Shift to a New Cyclical Bull

The setup for a new cyclical bull market in commodities is built on a powerful convergence of structural supply deficits, a reaccelerating demand cycle, and a supportive monetary backdrop. This is not a fleeting trend but the foundation for a multi-year macro theme.

The core imbalance is a severe underinvestment cycle. After the prolonged investment boom of the last supercycle, capital expenditure for new production has been depressed for years. This creates a structural supply deficit that is now coming into sharp focus. As one analysis notes, "serious underinvestment in supply" is a defining backdrop, a condition that naturally leads to tighter markets as demand recovers. This supply constraint is compounded by historically cheap valuations. At the asset class level, commodities are trading at a discount, providing a low-risk entry point for a rally. The combination of a constrained supply pipeline and a cheap starting price is a classic catalyst for a cyclical bull.

Demand is now turning up, supported by robust global economic growth. Analysts project a "sturdy global GDP growth" reacceleration into 2026, which directly lifts the need for industrial metals, energy, and other raw materials. This cyclical upturn is further amplified by long-term thematic drivers like the energy transition and infrastructure rebuilding. The result is a dual engine: a broad-based economic recovery meeting persistent, structural demand growth.

Monetary policy is providing a crucial tailwind. The expected shift toward easier policy, including "50 basis points of Fed rate cuts in 2026", creates a more favorable environment for risk assets like commodities. A weaker dollar, a likely byproduct of this easing, also makes dollar-denominated commodities cheaper for foreign buyers, boosting global demand. These macro shifts historically have "lit a fire under commodities," as noted in recent analysis.

The bottom line is a structural shift. The market is positioned for a new cyclical bull, not a minor bounce. With supply struggling to keep pace, demand gaining momentum, and monetary policy supportive, the fundamental case for higher prices is compelling. The early technical signs and low investor allocations suggest the rally has just begun.

Sectoral Dynamics: Energy, Precious Metals, and Industrial Cycles

The broad macro thesis for a new cyclical bull finds its clearest expression in the divergent performances across commodity sectors. The rally is not uniform; it is being led by hard assets and industrial metals, while energy faces a more complex, supply-divergent picture.

Precious metals are the undeniable vanguard. , and the momentum has carried into the new year. early in 2026, resuming its rally after a year-end pause. This strength is underpinned by a powerful mix of macro and structural tailwinds. Safe-haven demand remains elevated amid geopolitical tensions, while central-bank demand and investment flows continue to support prices. The expectation of lower policy rates, including bets of further easing by the U.S. Federal Reserve, further boosts non-yielding assets like gold. Silver and platinum are seeing even more pronounced moves, . For these metals, the rally is reinforced by tight physical supply and robust industrial demand, creating a dual-demand story that amplifies price sensitivity.

Energy markets present a stark divergence. Oil prices are grappling with a persistent supply glut, a condition that has kept them under pressure throughout 2025. As one analysis notes, oil prices declined through 2025 due to a growing supply glut, and the outlook for 2026 suggests prices could remain moderate. This is partly a structural shift, as electric vehicle adoption and efficiency improvements are moderating long-term demand growth. In contrast, natural gas is in a more constrained supply position, particularly in Europe. While global gas prices have seen recent volatility, the European benchmark has shown resilience, with the trading at a premium to the global benchmark. This regional imbalance highlights the uneven nature of the energy transition, where supply security concerns can override the broader trend of moderating fossil fuel demand.

Industrial metals are where the cyclical upturn is most vivid. , but the story is broader. Copper, the traditional bellwether, , signaling strong industrial activity. The performance of these metals is driven by a classic supply-demand imbalance. As noted, both markets face persistent supply constraints at a time when industrial demand remains robust. For platinum, this is compounded by its critical role in autocatalysts and a lack of new mine supply. The result is a market where even small disruptions or demand surprises can trigger outsized price moves, a dynamic that aligns perfectly with the structural deficit thesis.

The bottom line is a sectoral reordering. The rally is being led by assets that benefit from monetary easing and geopolitical risk, while energy is caught between a structural demand slowdown and regional supply tightness. For investors, the setup points to a market where the strongest returns are likely to come from metals that are both industrial and scarce.

Financial Impact and Portfolio Implications

The macro thesis for a new cyclical bull in commodities now translates into tangible financial and portfolio considerations. The rally has begun, but the setup suggests it is far from complete, with significant room for both price appreciation and investor participation.

First, the market is being fueled by a powerful mismatch between price action and investor positioning. Despite the strong gains in metals like gold and silver, investor sentiment is lukewarm and allocations to commodities in the aggregate remain very low. This is a classic signal of an early-stage bull market. When the crowd is not yet on board, it leaves ample room for further inflows to drive prices higher. The low allocations, particularly to non-precious metals, indicate that the rally may be just beginning its broad-based phase, where the "catch-up" to gold's lead is still ahead.

Second, a near-term technical headwind is emerging. Starting on January 8th, annual commodity index rebalancing will require funds to reduce exposure to recent outperformers. As noted, annual commodity index rebalancing from 8 January poses a technical headwind for gold and silver. This mechanical selling could introduce short-term volatility and pressure prices. However, this is a tactical, not a strategic, event. It may cause a pause or a shallow correction, but it does not alter the underlying structural and cyclical drivers that support the bull case. For disciplined investors, it could present a temporary entry point.

Finally, the valuation and technical picture confirms the rally is in its early innings. The broad commodity index is still in a new cyclical bull market phase, as highlighted by the analysis. A new cyclical bull market is getting underway; still early. This is supported by the asset class's cheap starting point, following a prolonged bear market. The combination of a constrained supply pipeline, reaccelerating demand, and supportive monetary policy creates a powerful momentum that has yet to fully unwind. The rally has just begun its broadening phase, with the primary valuation metric suggesting the path of least resistance remains upward.

The bottom line for portfolios is one of asymmetric opportunity. The structural supply deficit and monetary tailwinds provide a durable floor for prices, while the historically low allocations and lukewarm sentiment point to significant upside from here. Investors should be aware of the January rebalancing risk, but view it as a potential tactical dip rather than a reason to exit the theme. The setup favors a patient, strategic allocation to commodities, with the expectation that the rally has further to run before reaching a cyclical peak.

Catalysts, Risks, and What to Watch

The path for commodities in 2026 hinges on a few critical catalysts and risks. The structural bull case is clear, but its realization depends on confirming data, navigating geopolitical currents, and separating technical noise from fundamental momentum.

First, the durability of the cyclical upturn must be proven by hard data. Watch for sustained industrial demand signals, particularly in manufacturing and construction, which are the primary drivers for industrial metals. The annual rate of change in commodity prices tracks closely with the global manufacturing PMI, making this a key leading indicator. Equally important is monitoring for any signs of supply chain bottlenecks or production disruptions. The market's tight physical balances, especially for metals like platinum and silver, mean even minor hiccups can amplify price moves. Confirmation that the upturn is broad-based and not reliant on a few sectors will be crucial for validating the rally's longevity.

Geopolitical tensions remain a persistent, double-edged factor. On one hand, they act as a constant risk premium, reinforcing the safe-haven appeal of assets like gold and silver. Recent events, including assertive US actions in Central and South America, contribute to a more fragmented and volatile global landscape that supports hard asset demand. On the other hand, any resolution of these tensions could remove a key support for safe-haven assets, potentially leading to a re-rating. The market must therefore watch for both the escalation and de-escalation of regional conflicts, as both scenarios carry significant price implications.

Finally, the near-term technical landscape demands attention. The annual commodity index rebalancing from 8 January poses a technical headwind for gold and silver. This mechanical selling by funds could introduce short-term volatility and pressure prices. The critical question is whether the underlying fundamental trend proves strong enough to absorb this noise. Monitor positioning flows in the weeks following the rebalance. If prices quickly resume their upward trajectory despite the selling, it will signal that the rally is driven by real supply-demand dynamics rather than speculative positioning. Conversely, a prolonged weakness could indicate that the rally is more fragile than the structural thesis suggests.

The bottom line is one of selective vigilance. The setup favors higher prices, but the journey will be marked by data confirmations, geopolitical swings, and tactical headwinds. Investors should focus on the fundamental drivers-industrial demand and supply constraints-while using technical events like the January rebalancing as a potential entry point rather than a reason to question the broader thesis.