Some traders mistakenly believe that central banks have no impact on commodities, thinking their influence is limited to currencies, interest rates, or bonds. But this is a myth. The truth is: central banks have significant, indirect but powerful influence on commodity markets — particularly through monetary policy, interest rates, and currency dynamics. Commodities like gold, oil, and industrial metals are deeply connected to the macroeconomic environment shaped by central bank actions.

This article explains how central banks influence commodities, what traders need to watch for, and why ignoring them can lead to blind spots in your analysis.

Why this myth exists

1. Commodities aren’t directly set by central banks
Unlike interest rates or currency pegs, commodities aren’t part of central bank mandates — so traders assume there’s no connection.

2. Lack of clarity in cause-and-effect
The influence is indirect — through demand, inflation, and currency strength — so it’s harder to spot than with currencies.

3. Focus on supply/demand headlines
News on OPEC output or weather-driven shortages tends to dominate commodity coverage, overshadowing central bank effects.

4. Misunderstanding of global macro structure
Retail traders may not realise that central banks shape inflation expectations, capital flows, and liquidity — all of which impact commodity prices.

The truth: central banks have strong influence over commodities

1. Interest rates impact commodity prices via demand

• Higher rates slow economic growth — reducing demand for energy, metals, and agricultural goods.
• Lower rates stimulate spending and industrial activity — increasing demand for raw materials.

2. Central banks shape inflation expectations

• Commodities often rise during inflationary periods.
• If a central bank signals dovish policy (i.e. holding or cutting rates), it can fuel inflation fears — pushing gold, oil, and grains higher.

3. Currency strength affects commodity pricing

• Commodities are typically priced in US dollars.
• If the Fed raises rates, the dollar strengthens — making commodities more expensive globally and reducing demand.
• A weaker dollar tends to support commodity prices.

4. Central banks affect investor sentiment

• Easy monetary policy can lead to risk-on behaviour, pushing hedge funds and asset managers into commodities.
• Tighter policy leads to risk-off moves, often resulting in commodity liquidations.

5. Gold responds directly to central bank activity

• Gold is a monetary metal — it rises when real interest rates fall, or when central banks print money (QE).
• It’s used as a hedge against central bank credibility, currency debasement, and systemic risk.

Examples of central bank impact on commodities

• Fed rate hikes in 2022 contributed to sharp declines in oil and copper by weakening demand expectations and strengthening the dollar.
• QE programs during COVID fuelled rallies in gold and silver, as real yields collapsed.
• Dovish ECB policy often correlates with higher energy and industrial metal prices in the Eurozone.

Key commodities influenced by central banks

Conclusion

No — central banks absolutely impact commodities. While the relationship is indirect, it is undeniable. Interest rate policy, inflation outlook, and currency strength — all shaped by central banks — drive investor behaviour and demand across global commodity markets. Ignoring this link can leave traders unprepared for major shifts.

To understand how to trade commodities with central bank policy in mind — and build a complete macro approach — enrol in our Trading Courses at Traders MBA, where we connect macro, price action, and strategy with clarity.