Commodities: In like a lion, and out like a lamb?

The "Farmer’s Almanac" famously states that March weather often comes in like a lion and out like a lamb.

March is often the transition from winter to spring – at least in the Northern Hemisphere – and a volatile start to the month's weather can presage a quick transition and calmer weather as we exit the month.

This succinct summation of March’s changing weather also holds true for US financial markets, now hip-deep in tariff volatility, as efforts continue to transition US global trading relationships to a more level playing field.

The distinction is that spring and warmer temperatures will eventually come, while a global reset of trade relationships is not inevitable.

The misconceptions about gold

One place where volatility is not needed is the foundational assets of the central bank and treasury financial systems. So, we need to clear up three widely distributed misconceptions about gold.

The US Treasury does indeed hold gold

All 8,100 tons that the US Treasury holds in four locations – Fort Knox, the New York Federal Reserve Bank, the Denver Federal Reserve Bank, and West Point, NY – are reported on the Federal Reserve (Fed) balance sheet published weekly.¹

Furthermore, the US Treasury conducts and publishes an audit of the physical gold supply each year, the most recent being 2023, providing reports that can be accessed online.²

And, in case you may need more proof, in a recent public interview, current Secretary of the Treasury Scott Bessent even offered to arrange a tour for any senator who wanted to see the gold firsthand at Fort Knox.³

Gold revaluation on the Fed's balance sheet will not affect Fed operations

Since it was placed on the balance sheet in 1971, the 8,100 tons of gold have been held at the book cost of $42.22 an ounce.⁴

If revalued to $3,000 an ounce (roughly today’s market price), it would add $773 billion in assets to the balance sheet, reducing the liability-asset ratio to 8.2:1 from 153:1.⁵

Gold's market value is already taken into consideration, or the Fed would be severely limited by its 153:1 liability-asset ratio.

Gold is highly unlikely to get a tariff

Most US gold is imported from Switzerland, although this year, the imports from the UK have been nearly ten times that from Switzerland.^6,7

The UK is one of the major countries with which the US actually has a trade surplus. Last year, it was $11.9 billion, as we export more to the UK than we import from it.⁸ That fails to meet the aims of the tariffs to even the trade deficits.

The US trade deficit with Switzerland is rather large: $15.7 billion as of the fourth quarter of 2024.⁹ This is due in part to selling refined gold to the US. However, Switzerland refines between 50% and 70% of all gold globally. Putting a tariff on a global monetary asset would not appear beneficial.

Gold going forward

We have been favorable on the chances of gold price rises based on consistent central bank demand at these high levels.

Over the last three years, the central bank demand has more than offset the drop in demand from ETF investors.¹⁰ Central banks are buying to diversify their foreign exchange reserves away from US dollars and treasuries, which can become illiquid in the event of tariffs or sanctions, and instead purchase more gold.

ETF investors have been selling gold based on the historical relationship between real yields and gold prices. Since real yields have been rising, these investors have expected gold prices to fall. Now that real yields are falling, ETF investors have started to buy more gold. Central banks have continued to buy, with 2024 marking the third consecutive year they purchased more than 1,000 tons.¹¹

Having expected gold to reach $2,800 by the year-end of 2024 and $3,000 in the first half of 2025, we now see the potential for gold prices to reach $3,300 by the year-end of 2025.

A contrary theme that warrants closer scrutiny

While struck by the number of materials-intensive spending announcements worldwide, we wonder whether that could be bullish for industrial metals' prices. We provide the following list:

US shipbuilding
Citing the need to revitalize shipbuilding in the US, the US Navy has announced its plan to expand its fleet at an annual cost of $40 billion until 2054 and create a new Office of Shipbuilding that will report directly to the White House.^12,13
Artificial intelligence (AI) spending within the US
Meta, Amazon, Alphabet, and Microsoft may spend $320 billion this year on highly energy-intensive AI data centers requiring large amounts of copper, aluminum, nickel, and lead.¹⁴
US industry buildout
US industry has announced a $1.7 trillion buildout of new physical manufacturing and data center properties, including Apple ($500 billion), OpenAI and Oracle ($500 billion), Softbank ($200 billion), TSMC chipmaker ($165 billion), and Honda ($1 billion).¹⁵
Ukraine rebuilding
The German Marshall Fund of the US, a non-partisan American public policy think tank that aims to promote cooperation and understanding between North America and the European Union developed after World War II, estimates the cost to rebuild Ukraine over the next decade to be $460 billion.¹⁶
Gaza rebuilding
The United Nations estimates it will cost $80 billion to rebuild Gaza.¹⁷
European defense spending
Germany proposed €500 billion ($546 billion) to address/replace US withdrawal.¹⁸
China activity
The energy transition remains underway in the US and Europe; however, not at nearly the same pace as China's metals-intensive energy transition continues. Sales of all types of electric vehicles – battery and hybrid – in China rose 40% last year.¹⁹ China’s defense spending is also up 7.2% for 2025, along with a GDP growth target of “about 5%” for 2025.^20,21

Final thoughts

All of these projects represent spending for creating physical buildings, materials, warehouses, data centers, ships, munitions, tanks, artillery, and infrastructure, which use copper for electrical connections and electricity distribution, aluminum for weight and corrosion resistance, zinc to galvanize steel, nickel for batteries and armor plating, and lead for battery and backup power. Those metals can be found in the Bloomberg Industrial Metals index. This index has a close correlation to economic expansions and is not something we believe investors typically allocate to when there is a potential for stagflation. However, as evident by these spending targets, the expansion is coming in areas long neglected (US and European defense capabilities) and in reshoring some industries to the US and US technology. Finally, we believe the demand for these metals is coming at a time when supply lines are under threat of disruption via tariffs and friendshoring.[22] Reflected in the German government embarking in expansive fiscal spending for the first time in a generation, the conviction in industrial metals demonstrates the conviction that governments and companies have committed to the projects listed above.

¹ "Federal Reserve Balance Sheet: Factors Affecting Reserve Balances - H.4.1." Board of Governors of the Federal Reserve System, March 2025. https://www.federalreserve.gov/releases/h41/default.htm.
² "Factors Affecting Reserve Balances of Depository Institutions." Federal Reserve Balance Sheet: Factors Affecting Reserve Balances - H.4.1. Board of Governors of the Federal Reserve System, March 2025. https://www.federalreserve.gov/releases/h41/20250306/.
³ "Bessent Says US 'Long Way' From Boosting Longer-Term Debt Sales." Bloomberg, February 2025. https://www.bloomberg.com/news/articles/2025-02-20/bessent-says-terming-out-us-debt-a-long-way-off?.
⁴ "Fort Knox Facts." Fort Knox Bullion Depository. United States Mint, October 2025. https://www.usmint.gov/learn/tours-and-locations/fort-knox?.
⁵ "Federal Reserve Balance Sheet: Factors Affecting Reserve Balances - H.4.1." Board of Governors of the Federal Reserve System. U.S. Federal Reserve, March 2025. https://www.federalreserve.gov/releases/h41/20250306/.
⁶ "Importing Gold Into The U.S.: Coins, Medals, and Bullion." USA Customs Clearance, January 2025. https://usacustomsclearance.com/process/importing-gold-into-the-us/.
⁷ “America’s appetite for gold is ‘sucking’ bullion out of other countries.” CNBC, February 2025. https://www.cnbc.com/2025/02/28/us-gold-demand-is-sucking-bullion-out-of-other-countries.html.
⁸ "United Kingdom." Office of the United States Trade Representative. Executive Office of the President of the United States. March 2025. https://ustr.gov/countries-regions/europe-middle-east/europe/united-kingdom.
⁹ "Goods and Services by Selected Countries and Areas: Quarterly – Balance of Payments Basis (exhibit 20)." U.S. International Trade in Goods and Services. U.S. Bureau of Economic Analysis, January 2025. https://www.bea.gov/news/2025/us-international-trade-goods-and-services-january-2025#.
¹⁰ Bloomberg data: ETF gold holdings 12/31/2019 to 3/13/2025.
¹¹ "China's central bank ups gold reserves for fourth straight month in February." Reuters, March 2025. https://www.reuters.com/world/china/chinas-central-bank-ups-gold-reserves-fourth-straight-month-february-2025-03-07/.
¹² "Navy shipbuilding plan would cost $1 trillion over the next 30 years." Navy Times, January 2025. https://www.navytimes.com/news/your-navy/2025/01/08/navy-shipbuilding-plan-would-cost-1-trillion-over-the-next-30-years/.
¹³ "Trump to launch new White House office focused on shipbuilding." Defense News, March 2025. https://www.defensenews.com/news/pentagon-congress/2025/03/05/trump-to-launch-new-white-house-office-focused-on-shipbuilding/.
¹⁴ "Tech megacaps plan to spend more than $300 billion in 2025 as AI race intensifies." CNBC, February 2025. https://www.cnbc.com/2025/02/08/tech-megacaps-to-spend-more-than-300-billion-in-2025-to-win-in-ai.html.
¹⁵ "Remarks by President Trump in joint address to Congress." The White House, March 2025. https://www.whitehouse.gov/remarks/2025/03/remarks-by-president-trump-in-joint-address-to-congress/.
¹⁶ "Pricing Ukrainian Reconstruction." The German Marshall Fund of the United States, October 2024. https://www.gmfus.org/news/pricing-ukrainian-reconstruction.
¹⁷ "Gaza Strip will cost $80 billion to rebuild - but who will rule it?" The Jerusalem Post, January 2025. https://www.jpost.com/middle-east/article-838572.
¹⁸ "‘A really big bazooka’: German defense spending likely to rise after parties agree historic debt change." CNN Business, March 2025. https://www.cnn.com/2025/03/05/business/germany-debt-overhaul-defense-spending-intl/index.html.
¹⁹ "China’s electric car sales grew in 2024 as sales of gasoline cars plunged." Associated Press, January 2025. https://apnews.com/article/china-autos-evs-exports-3f5860634a1d146446dd0dd9e78c2abb.
²⁰ “China will increase its defense budget 7.2% this year." Associated Press, March 2025. https://apnews.com/article/china-defense-budget-taiwan-4ac7cbdc7d5b889732cd55916ff7eb36.
²¹ "China sticks to an economic growth target of ‘around 5%' despite a looming trade war with US." Associated Press, March 2025. https://apnews.com/article/china-congress-economy-defense-tariffs-d6192774e13ccb7e28e06d4c3f2173c4.
²² Friendshoring is a practice of shifting trade away from cheapest to deliver, toward a smaller and potentially more expensive set of friendly or allied countries.

Important information

An investor should consider the investment objectives, risks, charges and expenses of the Funds carefully before investing. To obtain a prospectus containing this and other important information, call 844-ETFs-BUY (844-383-7289) or visit www.abrdn.com/usa/etf. Read the prospectus carefully before investing.

Fund Risk: There are risks associated with investing including possible loss of principal. Commodities generally are volatile and are not suitable for all investors. There can be no assurance that the Fund’s investment objective will be met at any time. The commodities markets and the prices of various commodities may fluctuate widely based on a variety of factors. Because performance is linked to the performance of highly volatile commodities, investors should consider purchasing shares of the Fund only as part of an overall diversified portfolio and should be willing to assume the risks of potentially significant fluctuations in the value of the Fund.

The abrdn Gold ETF Trust is not investment company registered under the Investment Company Act of 1940 or a commodity pool for purposes of the Commodity Exchange Act. Shares of the Trust are not subject to the same regulatory requirements as mutual funds. These investments are not suitable for all investors. Trusts focusing on a single commodity generally experience greater volatility. Commodities generally are volatile and are not suitable for all investors. This material must be accompanied or preceded by the prospectus. Carefully consider the Trust’s investment objectives, risk factors, and fees and expenses before investing. To view the prospectus, please click here – abrdn Gold ETF Trust.

The Fund employs a “passive management” – or indexing – investment approach designed to track the performance of the Index. The Fund will generally seek to hold similar interests to those included in the Index and will seek exposure to many of the commodities included in the Index under the same futures rolling schedule as the Index. The Fund will also hold short-term fixed-income securities, which may be used as collateral for the Fund’s commodities futures holdings or to generate interest income and capital appreciation on the cash balances arising from its use of futures contracts (thereby providing a “total return” investment in the underlying commodities).

Through holding of futures, options and options on futures contracts, the Fund may be exposed to (i) losses from margin deposits in the case of bankruptcy of the relevant broker, and (ii) a risk that the relevant position cannot be closed out when required at its fundamental value. In pursuing its investment strategy, particularly when rolling futures contracts, the Fund may engage in frequent trading of its portfolio of securities, resulting in a high portfolio turnover rate.

As a “non-diversified” fund, the Fund may hold a smaller number of portfolio securities than many other funds. To the extent the Fund invests in a relatively small number of issuers, a decline in the market value of a particular security held by the Fund may affect its value more than if it invested in a larger number of issuers. The value of shares may be more volatile than the values of shares of more diversified funds.

During situations where the cost of any futures contracts for delivery on dates further in the future is higher than those for delivery closer in time, the value of the Fund holding such contracts will decrease over time unless the spot price of that contract increases by the same rate as the rate of the variation in the price of the futures contract. The rate of variation could be quite significant and last for an indeterminate period of time, reducing the value of the Fund.

Changes in the laws of the United States and/or the Cayman Islands, under which the Fund and the Subsidiary are organized, respectively, could result in the inability of the Subsidiary to operate as intended and could negatively affect the Fund and its shareholders

To the extent the Fund is exposed directly or indirectly to leverage (through investments in commodities futures contracts) the value of that Fund may be more volatile than if no leverage were present.

In order to qualify for the favorable U.S. federal income tax treatment accorded to a regulated investment company (“RIC”), the Fund must derive at least 90% of its gross income in each taxable year from certain categories of income (“qualifying income”) and must satisfy certain asset diversification requirements. Certain of the Fund’s investments will not generate income that is qualifying income. The Fund intends to hold such commodity-related investments indirectly, through the Subsidiary. The Fund believes that income from the Subsidiary will be qualifying income because it expects that the Subsidiary will make annual distributions of its earnings and profits. However, there can be no certainty in this regard, as the Fund has not sought or received an opinion of counsel confirming that the Subsidiary’s operations and resulting distributions would produce qualifying income for the Fund. If the Fund were to fail to meet the qualifying income test or asset diversification requirements and fail to qualify as a RIC, it would be taxed in the same manner as an ordinary corporation, and distributions to its shareholders would not be deductible by the Fund in computing its taxable income.

Investors buy and sell shares on a secondary market (i.e., not directly from Trusts). Only market makers or “authorized participants” may trade directly with the Trusts, typically in blocks of 25k to 100k shares.

Bloomberg®, Bloomberg Commodity Index Total Return℠, Bloomberg Commodity Index 3 Month Forward Total Return and Bloomberg Industrial Metals Subindex Total Return℠ are service marks of Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services Limited (“BISL”), the administrator of the indices (collectively, “Bloomberg”) and have been licensed for use for certain purposes by abrdn Inc. Bloomberg is not affiliated with abrdn Inc., and Bloomberg does not approve, endorse, review, or recommend abrdn Bloomberg All Commodity Strategy K-1 Free ETF, abrdn Bloomberg All Commodity Longer Dated Strategy K-1 Free ETF and abrdn Bloomberg Industrial Metals K-1 Free ETF. Bloomberg does not guarantee the timeliness, accurateness, or completeness of any data or information relating to Bloomberg Commodity Index Total Return℠, Bloomberg Commodity Index 3 Month Forward Total Return℠ and Bloomberg Industrial Metals Subindex Total Return℠.