• The US Federal Open Market Committee cut the Fed fund rate by 25-basis points this past week, the third cut made during 2025. 

• While the US dollar index has weakened, it did so before the three cuts were made, holding steady since. 

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• The commodity complex saw mixed results during 2025, with fundamentals overriding social media posts through the early part of December, for the most part. 

As expected, the US Federal Open Market Committee (FOMC) cut the Fed fund rate by another 25-basis points at the conclusion of the December 2025 meeting (Wednesday, December 10), with much of the post-announcement discussion focusing on the language used by Fed Chairman Jerome Powell regarding the outlook for futures FOMC moves. To summarize, there is still concern over the US labor market (the latest weekly jobless claims came in at 236,000 as compared to an expected 223,000 and the previous week’s 192,000) and inflation (next Thursday, December 18, will see the release of the November Consumer Price Index). Chairman Powell indicated one cut is possible during 2026 with another in 2027, though the Fed fund futures forward curve showed the market projecting two cuts next year. We’ll see what happens. 

What does the latest cut by the FOMC mean for investments in commodities? There are three ways (at least) to look at this question: 

• Economically
• Politically
• Fundamentally

Let’s start on the economic side. Historically, the relationship between US interest rates, the dollar, and commodities has looked something like this^[i]:

• Rising interest rates pull the dollar higher
• Gold peaks
• The CRB Index (commodities in general) peaks
• Interest rates peak, bonds bottom
• Stocks bottom
• Falling interest rates pull the dollar lower
• Gold bottoms
• The CRB Index bottoms
• Interest rates run up, bonds peak
• Stocks peak
• Rising interest rates pull the dollar higher

However, I could make the argument the evolution of the industry means this pattern doesn’t necessarily hold true. But let’s say it does. What would we expect from our commodity complex investments? 

• With the Fed fund rate cut for the third time during 2025 this past week, the expectation is for the US dollar to have weakened.
• A look at the long-term monthly chart for the US dollar index ($DXY) shows the greenback actually bottomed, from a technical point of view, between July and September 2025 and has since turned to a sideways trend.
• Lower interest rates would also mean the commodity complex has strengthened, based on the tradition view of intermarket relationships. For this, let’s look at the 3 Kings of Commodities:
  • The Cash Gold Index hit a high of $4,381.21 during October, and as of this writing has rallied to within $50 of that mark.
    • Cash Gold (GCY00) is up 66% for 2025
    • And up 165% since the October 2022 settlement of $1,633.50
    • Meaning Cash Gold has not only strengthened while interest rates came down and the US dollar weakened, but while interest rates were rising and the dollar firmed.
  • The National Corn Index ($CNCI) bottomed at the end of August 2024, initially gaining 34% through February 2025
    • While the US dollar index firmed from its September 2024 low of 100.15 to a January 2025 high of 110.17
    • Indicating the Indexes moved together rather than diverged
  • Spot-month WTI crude oil (CLF26) has done next to nothing this year.
    • As of this writing, the spot-month contract is price near $57.50, down 20% for 2025
    • Despite the US dollar weakening 11% from its December 2024 settlement through its low monthly close this past July of 96.75

Why are we not seeing a clear traditional connection between interest rates, the dollar, and commodities? Politics. The political climate of the US, and world, has changed over time. The US now has a one-word trade policy (tariffs) until private “deals” are made between the US president and countries, industries, entities, etc. most affected by the US self-imposed consumer taxes (aka tariffs). This has changed the flow of investment money into, or out of, the commodity complex, with Watson (my name for the global algorithm investment industry in general) still influenced by the latest headlines and social media posts by the US president. 

Which brings us to fundamentals. Recall Newsom’s Market Rule #6 tells us, “Fundamentals win in the end”, but does this rule hold true at a time when those in positions have power have no interest in “rules”? For now, I’ll stick with “yes” as my answer. Let’s look at some examples: 

• Cattle markets skyrocketed during 2025 due to continued tightening of supply and strengthening demand from US consumers. And while both feeder (GFY00) and live (LEY00) markets have been hit by comments from the US president, with assistance from the Secretary of Ag and USDA, the fundamentals of the beef industry haven’t changed dramatically. If a change is coming during 2026, it could finally be a crack in consumer demand due to inflation and a weakening labor market (see the opening discussion).
• Silver continues to hit new all-time highs, with the Cash Index (SIY00) reaching $64.50 through the first third of December. While the US president did away with the previous administration’s fuel standards, halting the move toward “green” energy and electric vehicles, the rest of the world continues to move forward, increasing the demand for silver as a key component of the EV industry. The contrast between what is happening with crude oil and silver is stark and telling in regard to what long-term investors are looking at. Can silver continue on this path? As we’ve seen over the last number of years, these types of rallies soon burn out as Watson looks for the next big opportunity.
• One of those opportunities won’t be US soybeans, most likely. While the National Soybean Index ($CNSI) posted a strong rally from October 1 through mid-November, oddly enough while the US government was shut down, it has since started to sag through the first third of December. Thursday night saw the Index priced at $10.2360, still below the previous 5-year and 10-year end of December average prices of $12.50 and $10.59 respectively. This tells us that based on the economic Law of Supply and Demand, the US has ample supplies on hand to meet demand, due in large part to the ongoing trade war with China that was announced on social media back in January 2018. 
   

^[i] From John J. Murphy’s book “Intermarket Technical Analysis”, 1991 edition, page 94

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