I'm Charlotte Mloud with investingnews.com and here today with me is Jim Weerhold, commodity indices product manager at Bloomberg. Thank you so much for being here. Great to have you. >> Great to be here. Thank you for having me. >> Really good to be speaking with you. We've got definitely a lot to go into today, but I thought just because it's our first time speaking, if you could start with a quick introduction to yourself and your background in the commodity space. >> Sure thing. Yes. Uh, so I'm the


Bloomberg commodity index product manager. Uh, I also cover digital assets. Uh, but my, uh, background is is more of a commodity focus. Um, prior to, uh, Bloomberg, I was at another index provider for several years. And then uh prior to that I've spent most of my career in the hedge fund industry uh at different macro funds um before uh starting uh you know my my career in the the index space and a lot of the the macro trading ideas were commodity focus and that that tailored nicely into my


current role in uh in index. >> I always enjoy hearing about how people got into this sector. So thank you for sharing. Today we're going to focus on your commodities outlook for 2026, but I wanted to begin with the Bloomberg commodity index rebalancing, which I've been seeing in headlines for the last couple of weeks or so. I believe at this point it's wrapped up. So, it's been getting quite a bit of attention and I was hoping for those who aren't familiar if you could explain what it is, why it


happens, and what that process looks like. >> Sure thing. Um so yeah as as part of that I'm going to just uh step back and and basically explain what the BCOM is for uh people who don't understand that it's the Bloomberg commodity index is the name goes by BCOM uh and it's a broad commodities benchmark that is made up of uh now with the introduction of coco this year 25 of the most traded and most significant commodities in the world. Uh so it's a a benchmark that market participants use uh as a way to


gauge what's happening in the asset class similar to other indices on the equity side and fixed income side. Uh you know they they looked at BCOM for a similar approach. Um so this this uh benchmark has been around for uh over almost three decades now and uh so has a very long history and uh it's it's made up of uh four pillars. um the the first being liquidity, second being economic significance and then uh diversification and finally continuity. Uh so with the rebalance that you're referring to uh


this uh specifically looks mostly at the first two pillars of liquidity and uh economic significance. So uh every year this rebalance occurs in January during the roll period and uh prior to that at the end of the prior year we do analysis on the underlying liquidity of every commodity futures market to determine uh you know which one should be weighted more or less uh and in the initial waiting that's uh 2/3 importance and then the remaining 1/3 is based on economic significance which is world


production of each commodity. So, uh, we we look at five-year averages of of every commodity. We look at the trading volumes, and we look at the world production, uh, combine that to get to our our target weights after we put in our diversifi diversifying caps and floors. Um, and then we announce that at the end of the prior year and then it goes into effect uh, in January, which uh, you know, we're just coming out of right now. So, um, yeah, this is happens on a yearly basis. Um the the index uh


you know re reconstitutes is is the uh exact term uh but it's al often referred to as rebalancing and uh you know this is done uh on a yearly basis to make sure that the index still meets this objective as uh you know an exposure of commodities in the current environment. So as commodity markets change this adapts but in a slow manner uh so that there's continuity from year to year. that that's the fourth pillar. Um so we so we do we take all these steps uh you know we have a lot of governance checks


in place and uh the the index uh has stood the test of time so far uh almost three decades of existence um and and it is because of this methodology and and how we approach uh you know making sure the index does what it's supposed to do. I think that's a a great overview of the process that you go through and just this current year when I was reading about what was going to be happening. I think investors had a lot of questions about how prices for commodities, markets for commodities might be


impacted by the current rebalancing just because prices for so many commodities are so high right now. There were questions about is there going to be volatility etc. So what what did we end up seeing? Is there anything you can say there? Yeah, there there are a lot of news articles out about uh you know there's going to be a significant drop in the weight of gold and silver because of the rebalancing. Um and uh you know we we we've seen gold and silver prices continue to make new highs. So um you


know the the impact uh seems to be muted compared to the very significant demand uh across multiple different market participants who um you know are are chasing these prices now at at at the at this point. Um so yeah it's it's uh the the role period it's it's done so in a way that it's done over a fiveday period uh which which helps with the replicability of the index. So you know um it goes over a 5day period so the the weights change slowly 20% each day uh which is an attempt to make sure that it


doesn't move markets. Um and uh you know that that's been pretty successful this year so far uh despite all of the uh you know warnings from uh different uh reports you know a couple weeks ago. Um but yeah this this uh approach the this 5day roll period is is very standard in the commodity index business. So other indices have the same approach and uh this is you know a time when when you know trading picks up uh across these commodities markets and it's it's flagged pretty well uh across all the


major uh users of the index and uh the the broader market. So people are very aware that it comes uh you know we have it stated pretty clearly in our methodology of how it's done and uh you know there's there's always there's always chances for um things to occur but we also have extra governance checks in place and and fallbacks if if there's an extreme scenario. Um but you know the the the index uh has basically rolled to the new target weights now. Um and and then so these weights uh you know they


get rebalanced now uh but over the course of the year uh the weights can shift as the underlying prices change. So uh this is something that we saw in 2025 gold and silver prices moved up drastically um and uh you know they're they're at near near peaks potentially but um you know they have very significant performance and because of that the weights of gold and silver rose pretty dramatically over 2025. Um I I referred to the diversification pillar earlier. So the caps and floors that we


have, no single commodity can have more than a 15% weight uh when we reconstitute every year to the new target weights. So uh you know gold starts out um it started out last year as well near 15% just below it. Uh but by the end of the year uh gold was near 20%. Uh in the index just because of the price increase compared to the other commodities prices which may not have moved anywhere near as much. Uh and then same thing with silver. you know, silver uh the the weight of silver rose and it was about twice the weight at the end of


2025 as compared to what it was with the the target weights at the beginning of the year. So that's why a lot of people you know wrote these articles and and said that it could potentially be an issue but um you know the any selling was uh dwarfed by uh the consistent buying in in the gold and silver markets uh which both have a lot of tailwinds which we can go into a little more uh later. Yes. Yes. Absolutely. I think this is a good leadin to talking about your outlook for commodities for 2026. So


you're talking about the strength in gold and silver prices which absolutely has continued into this year. But in in your report looking forward to 2026. You mentioned that industrial metals could potentially unseat precious metals in the year to come. So I'm wondering what factors you are looking at that tell you this is something that we should be on the lookout for. >> Yeah. Um I mean there's there's basically a piece of that is is basically the significant outperformance


of golds and the remaining precious metals over the last year. Uh gold has had a a very strong run over the last two years and uh you know just we we have a a plethora of uh data going back uh historically uh the BCOM history we back tested it uh into 1960 which you can see on the terminal. Um so so you're able to compare how commodities move uh during different macro environments and uh you know the the gold and silver moves are are very strong compared to other moves where they moved exponentially for for a variety of


reasons. Um so you know that that call potentially of industrial you know overtaking precious in performance this year a function of that is because precious has already moved so much and industrial is just starting to move. So um I I do highlight this in my outlook that uh I look at the sector performance within BCOM. uh becomes made up of uh six sectors where we have the precious metals, industrial metals and then we have energy and then the remaining three are grains, agricult uh livestock and


softs. Uh so if you just look at the performance of each sector over the last four years there there's sectors that have clearly done very well and and precious metals are the standout there. Uh but then other sectors uh when you look at the 2022 23 24 performance like industrial metals it was negative and then we finally see industrial metals picking up uh in 2025. So could be the start of you know a sector rotation basically moving from precious metals to industrial metals in terms of outperformance. Um so part of that is is


the already big move in precious metals but another part is that the fundamental story for industrial is is very strong. you know there's there's uh potential huge supply demand imbalances coming in the future according to forecasts our are our uh internal research group Bloomberg NEF uh or BNF uh people may be familiar with they they put out forecasts for uh transition metals uh and the outlook over the next few decades and you know they forecast huge deficits for copper compared to the


expected demand and and a function of that is basically because uh you know we we have a certain amount of copper mines in existence. Uh and it certain industrial metals it can sometimes take up to 10 years to have a new mine into production. Um so you know it it takes a very long time to increase the supply but demand may be increasing even more and and that's a fundamental reason why you you'd want to uh at least be interested in industrial metals at this point and potentially you know one of


the reasons why they could outperform precious metals after they've already run so high and so hot. >> Right? So multiple reasons why we might see this play out in 2026. And maybe we can take a bit of a closer look at what you have under the industrial metals umbrella. So we've got copper, which you've mentioned with the positive supply demand fundamentals. What else is is under that industrial metals umbrella? >> Yeah, I mean it's it's most of the very popular metals that people are familiar


with, you know, aluminum, nickel, zinc, lead. Um and then uh one other one that isn't in BCOM but it's in some of our other indies tin is is also something that's uh considered you know one of the main industrial metals out there. Um and uh you know interestingly nickel was one of the uh the big underperformers recently in that industrial space. But uh nickel prices have really ramped up within the last month or so. And uh you know part of the reason is something that we see with other metals where uh a


lot of supply is focused uh geographically in like key locations certain countries and uh you know some countries especially with uh what we saw with cobalt last year that they have they're putting export bans and uh you know quotas on on the amount of metal that they can actually export. So that's something that we've seen throughout history and uh you know Indonesia just did that with uh you know nickel. Uh so that's part of the reason why those prices are starting to move after you


know the underperformance. Um and you know aluminum is also on the rise as well. So we're we're we're starting to see a lot of these metals which have a lot of the the the energy transition demand that we're seeing which is a big theme all all these metals play a part. So they they all are are pieces of, you know, renewable energy technology, electric vehicles, uh you know, wind turbines and solar panels. And um you know, we're we're seeing demand still strong and and pick up and uh you know,


that that's a theme that's likely to continue to play out over the next few years and decades. >> Maybe we could touch on your broader economic outlook as well because certainly for copper, maybe for the rest of the industrial metals as well. I tend to hear that we we have to be aware of what's going on in the global economy in order to know what's coming for copper. It's Dr. Copper. It tells us about the health of the global economy. And if things are not looking so good, then


that's a a threat to the outlook for copper and as I said, maybe the industrial metals broadly as well. So, what are you seeing? What are you seeing there? >> Yeah. So, it's actually very interesting that copper is making new all-time highs as gold is too. um you know that that doesn't always happen because you you tend to see gold make new all-time highs when it's riskoff scenarios or a lot of uh uncertainty in the markets and then copper makes new all-time highs as you said it it is uh Dr. copper, it's


correlated to, you know, economic data points in terms of uh industrial growth and and things like that. And um it's it's interesting to see that where the the world is kind of climbing this wall of worry where copper is rising while gold is rising at the same time. And um you know, I I do have this in my outlook that there's uh potential for a stagflationary environ environment this year if um you know, certain things play out. uh we we've seen inflation cool over the last few years since the highs


of uh in 2022 and um you know that that's a steady mean reversion trend uh that that has continued even with the last inflation reading. Um and you know commodities tend to be very correlated. They're they have the highest inflation beta out of any asset class. So people tend to use commodities more generally as an inflation hedge in their portfolio. And um you know industrial metals are are are the one sector that is one of the highest in terms of how sensitive it is and to inflation. Energy


is tends to be the highest most sensitive um but industrial metals are right there. And uh you know after we've seen this move lower in in uh in prices more generally with with inflation coming down. Um you know there's there's potential uh depending on what happens with uh you know government regulations and things like that. um we we we could be in an environment where where inflation may have troughed just because if you look back historically uh I I wrote about this about uh in the 1960s


and '7s we we had inflation spikes and during those time periods commodities were the best performing asset class while the other asset classes suffered during certain periods and uh I there there's a chart that you can you can easily do o overlay the 1960s inflation and 1970s have that chart versus what has happened from 2010 until now. And it's strikingly similar. It's like eerily similar because there was a period just like in the 2010s, very low inflation for a very long time. Then we


saw a dramatic spike um and things have cooled off now. The same thing happened in the 1960s and '7s. So we had a spike, things cooled off, but then inflation spiked to higher to twice as high as the prior peak, you know. So that that that's something to really it's it's happened in history. So it is something you have to factor in and uh if we are going to move into this stagflationary environment you know commodities are the one of the asset classes that tend to perform very well during those economic


periods. >> And just to go back to precious metals a little bit more specifically gold and silver. So they could as you've been talking about take a backseat to the industrial metals in 2026. But what what do you see coming if we look at those metals? Are they going to keep going up just a little bit less or or what are you thinking there? >> Yeah, I mean um I don't I don't forecast commodity prices anymore or uh or or try to uh you know make any money off of it. Um but we basically just provide the


benchmark but um you know historically when whenever you have such an exponential move higher in in gold and silver uh they they there's tend to be a cooling off period. So there's definitely potential for consolidation after the move. um you you do see consolidation most recently over the last few years o over month to few month period after new highs are made. Um so so that that could potentially happen and uh also part of the reason for my call with uh you know trend trend exhaustion potentially in these and then


uh while while we're just at the start of trends potentially for industrial metals that's part of that that call too. Um but another interesting thing that I I looked at historically um cuz uh this o over the same period actually I think it was over the last uh 50 years every time that gold makes a new all-time high I looked at what the BCOM does so what broad commodities in general afterward and uh on average every time gold has made a new all-time high uh BCOM rises 5% over the next quarter and 15% over the next year. So,


um, you know, people who, uh, had gold in their portfolio, they're they're doing very well. Um, and, uh, you know, potentially you could see people consider at least selling some of their gold exposure and broadening out with a broad commodities index like BCOM. Um, you know, we saw some recent ETF flows for the the physical backed uh, metals. um some outflows out of silver, some profit taking into gold and then maybe uh you could see that uh spill into the broader commodity space potentially. Um


another interesting thing that happened uh last year uh because we we also just we look at flows across different uh investment products and um you know it was a very strong year for commodity ETFs uh overall and um most of that was you know gold the the physical metals there there was a lot of uh interest and inflows and uh there was over 100 billion of uh inflows into those ETFs while there was only half as much into crypto. So, you know, the the year prior 2024 was like when we saw big inflows


into crypto ETFs and not necessarily in commodities and then that has turned its head and it seems like now is um everyone is starting to at least consider commodities again. >> Really interesting numbers how how we see that the highs in gold and how that translates. So, I think that's definitely numbers and trends worth paying attention to for investors. And I want to make sure that we take a look at what's going on with energy as well. You also mentioned this in your report, the


growing demand for energy, some of which is because of AI demand. And I'm curious if you could talk a little bit more about which commodities you see perhaps benefiting from that increased demand the most. >> Yeah, I mean it any of the commodities that that go into generating the power uh is is something that could potentially see a pick up in demand. Um but you know, we we have a huge need for for data center buildout. So that's going to be a huge driver of industrial demand, industrial metal demand as well.


So um you know that clearly the world seems like it's fully embracing AI and it's only going to get more so in in the next uh few years. So anyone who hasn't adopted it seems like you know everyone's getting in and that means there's just going to be need for more power uh to for for all of this. And then if uh this this environment continues then you know we you need the basic building blocks in in order to uh build the infrastructure to be able to support that. So um you know that that's


going to be another underlying tailwind structural bid for you know commodities that that go into the the buildout of these data structures like the chips the the rare earth metals as well. Um so yeah it's it's uh definitely something that people need to be considering. Um and and and people are you know people have in the AI space looked at you know which suppliers supply the the chips and you know they they they go that route when they when they look to allocate exposure. But um yeah, we we also see


people interested in um commodities in in general just because uh if if AI does what it's supposed to do, that means we're going to be way more productive, which means that we're going to be doing a lot more across the board, across sectors, across industries. So that just means more demand for commodities in general. >> Yeah. Yeah. It really does seem like we're getting into that unstoppable demand type of scenario. And I I don't want to keep you overly long here, but I


want to before I let you go, just go over a couple of other things are that are in your report and we'll make sure to link the report in the video description so people can read the full thing. But you also go over risks, supply risks related to geopolitical issues. Certainly, we have a lot of those in the world today and weather related issues. And these are these are inherently hard to predict. So I wonder when you're looking at this, how do you go about integrating those into your outlook?


Yeah, I mean it's uh clearly this is also a function of basically that we're in a different world than we were 5 years ago. Um you know the the geopolitical risks have clearly ramped up in in the last 5 years in the 2020s. So, so the 2020s are just becoming a a very conducive environment for commodities because, you know, supply when it gets disrupted, commodity prices tend to spike if that happens in a commodity producing region or near uh you know, a bottleneck of where uh the raw materials travel uh on on a regular


basis. And you know uh not not only are we having geopolitical issues spike up even more so and a regular frequency over the last few years but uh you know most governments are are starting to nearshore and basically re reverse the globalization trend that we've seen over the last few decades. So that's going to increase the the cost of of business. And then also uh you know without the ability to have multiple different venues to to source your materials if something happens and that that causes uh you know a big spike in


price and and we we already see tanker rates you know rising across the board too. So it's it's kind of like a a perfect storm of of of a lot of things happening here. And you know um who we We've seen a lot of things recently on the geopolitical front that we've never seen that are unprecedented. I'm not going to go into detail on all of them, but uh basically, you know, a lot of these things are happening because countries are needing to source critical minerals and and metals and commodities.


So, you know, that that's going to be clearly a big focus of at least the US administration and other countries as well. So, um I don't I don't see that ending anytime soon. >> Yeah, for sure. too many of these events to mention for the scope of this conversation, but we can see how it all relates back to commodities. I think that's a great place for us to wrap up unless you had any final thoughts that you would leave people with heading into 2026. >> Uh, no, I think that was great. Yeah,


just wanted to highlight, you know, as as we talked about, commodities use for inflation hedging typically, but also as a diversifier. So, you know, they're they're uncorrelated to other asset classes and uh you know, if people are concerned about the runup in valuations and equities, you know, now is uh at a time where people probably start considering it if they haven't already. And uh yeah, it's very very conducive macro environment overall for all the things that we said. And then yeah, you


can also read my outlook as well to go into more detail. >> Yes, highly recommend reading the full version and thank you so much for coming on to go through with us. This was great. >> Yeah, thank you for having me. I really appreciate it. >> Of course. And once again, I'm Charlotte Mloud with investingnews.com and this is Jim Weerhold with Bloomberg. Thank you for watching. If you like this [music] video, make sure you hit the like button and subscribe to our channel. We'd also love to hear your


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