Uncovering the Hidden Drivers of Commodities

2025 was a landmark year for precious metals, with gold and silver surging to new record highs of over $5,000 and $100 an ounce, respectively. In 2026 investor focus shifted to oil amid the Mideast conflict.

Commodities can move independently of each other depending on the intervening micro or macro factors, and sometimes they may experience higher positive correlation, that is move in tandem. At this point, let’s examine the general behavior of commodities across the landscape from energy to metals to grains and beyond.

Utilizing the Bloomberg Commodity Index (BCOM)¹ and its five commodity sectors as a proxy, we demonstrate the diverse commodity behavior relative to each other and to the index as commodities tend to be mean reverting markets, are prone to the ebbs and flows of supply and demand and may cycle between expansion-contraction periods (Fig. 1).

In the early 2000s, the BCOM energy sector led the index as it rallied over 860% from February 1999 to September 2005. Some of the factors influencing this rally included structural shifts due to increased demand from China and India. By 2003 China became the second largest consumer of oil after the U.S. There was also a supply shock factor as both Iraq (due to war) and Venezuela (political issues and a nationwide strike) reduced production.² This was followed by a second energy-sector rally of 107% from Jan 2007 to July 2008 as WTI crude oil reached over $147 per barrel. This was due to continuing global demand, especially China and India, tight supplies, geopolitical issues in the Middle East,³ and a weaker U.S. dollar.⁴

In the early 2000s, the BCOM industrial metals sector rallied about 395% from Nov 2001 to May 2007 primarily due to the growth of China’s industrialization and a large migration of Chinese from rural to urban areas increasing demand for construction and infrastructure materials. Simultaneously, the grain markets experienced several rallies between 2002 and 2012 due to a declining U.S. dollar, increase of biofuel products, growth of per capita income increasing demand for animal product consumption, and a growth of the world population.⁵

Post-Financial Crisis, commodities moved higher led by precious metals and grains. This was followed by a slow sideways move and price declines in many commodity sectors. In August of 2018 precious metals began their multi-year climb (Fig. 2). By May of 2024 the precious metals sector broke away from the other commodities and prices began an accelerated price rise.

In recent years, the precious metals sector led the index due to increased geopolitical tensions, fiscal and monetary policies, central banks continuing to accumulate gold, and industry demand for silver boosted by the energy transition and construction of data centers.⁶ This was followed by industrial metals moving higher (Fig. 2) due to the energy transition.⁷

It’s interesting to note that in October 2025 silver exceeded its high that had stood for 45 years (January 1980) and doubled that high in about three months when it exceeded $100 per ounce in January 2026. (In April 2011, silver did test the 1980 high but could not breach it).

When silver declined 30% on Jan 30, 2026, that was comparable to slumps in equities. For example, during the October 19, 1987, stock market crash, the S&P 500 declined about 21%. As COVID-19 began to spread across the U.S. in March 2020, the S&P 500 declined about 30% over two weeks.

After a post-financial crisis commodity rally, the sectors generally moved sideways to lower (Fig. 3). This suggests a dampening effect of commodities on the Personal Consumption Expenditures (PCE) Price index, as inflation was primarily experienced in the services sector prior to COVID-19. (Fig. 4). Between July 2010 and December 2020, durable and nondurable goods prices remained relatively stable. Commodities such as industrial metals are inputs for products listed in the durable goods PCE sector. However, many commodities are housed in the nondurable goods sector.⁸

During COVID-19 in early 2020, as the global economy slowed, the BCOM commodity sectors declined. This was followed by a commodity rally beginning in the summer of 2020 that lasted about two years. During this time both the CPI and PCE inflation indices increased.

Because there are many price inputs beyond commodities in the PCE Price index, the relationship between commodities and inflation is nuanced. The data implies a stronger relationship due to a lagged effect as a commodity index measures raw material prices in the earlier part of the supply chain. Comparatively, an inflation index measures what the consumer pays at the end of the supply chain. Meaning, it can take a few months from a commodity impacting a commodity index to it impacting an inflation index.

While metals and energy received most of the headline attention in the last couple of years, the BCOM livestock sector, particularly live cattle, has drifted higher since 2020 (Fig. 5). From April 13, 2020, to March 6, 2026, the BCOM livestock sector appreciated 86%. This rally is primarily due to the smallest heard size since 1951 and the strongest consumer demand in the past two decades.¹⁰

The correlation matrix (Fig. 6) finds the commodity sector correlations vary with each other as most of the correlations are relatively low positive correlations, suggesting possible combinations of diversification within the commodity universe. The correlation of sectors to the BCOM index is probably related to the sector weights.¹¹

Source: Bloomberg (BCOM, BCOMIN, BCOMEN, BCOMGR, BCOMPR, BCOMLI), CME Group Economic Calculations

While a correlation matrix offers a “snapshot in time” of relationships, rolling correlations examines the relationship dynamics over time. Figure 7 notes the commodity sectors frequently have a low correlation to each other, but in some market environments, the relationship may sustain stronger positive correlations, such as industrial metals to precious metals or industrial metals to energy.

The data suggests the correlations cluster as they transition between higher and lower correlations. Such as at times around 1997/98, 2000, 2007, 2011 to 2014, and 2018/19. The distribution of rolling correlations as box-and-whisker plots shows most of the rolling correlations with relatively low averages (x) and medians (line) are ordered from the lowest average to the highest (Fig. 8). The rolling correlations of industrial metals to energy and industrial metals to precious metals have the highest average at 0.29 and 0.33 respectively.

The relationship between commodities and the U.S. dollar (USD) is a factor to consider when examining commodities. Think of it as a tool in your commodity toolbox of macro and micro items to consider. Between July 2001 and April 2008, the U.S. dollar as measured against a basket of currencies (DXY) declined about 49%.

Since many commodities are quoted in USD, commodities may appear cheaper in other currencies as the USD declines, potentially causing increased global demand and higher prices for those commodities (Fig. 9). This was stated earlier as one of the macro factors for commodity price increases in the early 2000s.

The DXY index bottomed in 2008 and trended higher until 2022. For most of that period the BCOM index declined.

Between Jan 1, 1992, and March 3, 2026, the correlation of weekly returns between DXY and BCOM is -0.31. Basis a 12-month rolling correlation of DXY to BCOM, it’s negative 89% of the time (Fig. 10).

The data shows commodity sectors may move independently of each other and sometimes their movements may overlap as the correlations can cycle between positive and negative moments depending on the factors influencing commodity prices. The USD, monetary policy, and geopolitical issues may impact commodities. Sometimes it’s just a simple supply and demand scenario that impacts a particular market or sector. Commodities have an indirect relationship with the PCE Price Index, but a more direct relationship with the PCE durable and nondurable goods sectors.

Where some commodities, such as food and energy, have dampened inflation in prior years, could they be a catalyst for future inflation?

1. https://assets.bbhub.io/professional/sites/27/BCOM.pdf The index contains 22 commodities and 24 commodity futures markets.

2. https://www.stlouisfed.org/publications/regional-economist/january-2005/what-is-driving-oil-prices

3. https://www.sciencedirect.com/science/article/abs/pii/S0301421510004271#preview-section-abstract

4. https://www.imf.org/external/pubs/ft/wp/2008/wp08130.pdf

5. https://www.ers.usda.gov/amber-waves/2011/september/commodity-price-spike

6. https://blogs.worldbank.org/en/opendata/precious-metals-surge-to-all-time-highs

7. https://www.bloomberg.com/professional/insights/commodities/commodities-outperform-in-2025-will-the-tailwinds-continue/

8. https://www.bea.gov/resources/methodologies/nipa-handbook/pdf/chapter-05.pdf “Nondurable goods: food and beverages purchased for off-premises consumption, clothing and footwear, gasoline and other energy goods, and other nondurable goods”

9. https://www.cmegroup.com/insights/economic-research/2025/how-much-do-commodities-impact-inflation-indices.html

10. https://agamerica.com/blog/cattle-market-outlook/

11. https://www.bloomberg.com/company/press/bloomberg-commodity-index-2026-target-weights-announced/

Bloomberg Commodity Subindex futures offer a robust and flexible tool for trading and managing risk in individual commodity sectors.

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All examples in this report are hypothetical interpretations of situations and are used for explanation purposes only. The views in this report reflect solely those of the author and not necessarily those of CME Group or its affiliated institutions. This report and the information herein should not be considered investment advice or the results of actual market experience.