Commodities Are Back: John Love on Energy Shocks, Precious Metals, and the New Risk Premium

In this episode of Lead-Lag Live, I sit down with John Love, President and CEO of USCF, to break down why commodities are re-emerging as a critical part of portfolios as markets face inflation uncertainty, geopolitical risk, and supply fragility.

From a historic spike in natural gas driven by extreme weather to renewed risk premiums in oil, gold, and silver, John explains how commodity markets are being reshaped by geopolitics, tariffs, and structural supply dynamics and why broad exposure alone may not be enough.

In this episode:
– Why natural gas markets proved more fragile than expected
– How weather shocks and infrastructure strain drive outsized moves
– Why oil continues to carry an elevated geopolitical risk premium
– What’s fueling record highs in gold and explosive moves in silver
– How investors can think about targeted commodity exposure versus broad indexes

Lead-Lag Live brings you inside conversations with the financial thinkers who shape markets. Subscribe for interviews that go deeper than the noise.

Transcript

What Broad Commodity Indexes Miss

SPEAKER_00 0:00

If you own just the traditional broad indexes, what you're typically going to get is a high allocation to energy and some other uh some other commodities. And then they'll they'll sprinkle in um some of the other commodities that you hear about less that are less headline driven. And that's great. I mean, it's a great signal of how the global economy is doing because the way they weight commodities is based on production or liquidity. So, you know, oil is the most important commodity in that respect. Oil and gold are the most talked-about commodities. So traditional indexes are going to kind of give you that exposure or at least show you what commodity markets are doing in that respect. It there's no market cap in commodities, so that's the way they do it.

Birthday Tote Giveaway Details

SPEAKER_01 0:52

So it's my birthday, and this year I'm celebrating by giving a special gift away to one of you. And to officially wish a happy my birthday to you, I've had this tote with a few surprises from our signature PTRU merch portfolio. And it's not just random merch. Inside, you'll find some items that really at least signal you know exactly what you're doing in these markets. And the tote? Well, it won't hedge your portfolio, but it will make you look smarter than anyone pretending they know what risk on means at the grocery store. If you want it, here's what you need to do. Follow Lead Leg Report on X, follow Mela underscore Schaefer on X, subscribe to Lead Leg Media on YouTube, and like and share this video. Only one person gets the toe, but since everyone gets our content, it's really a happy my birthday to all of you. I'm your host, Melanie Schaefer. Welcome to Lead Leg Live. Today we're talking about commodities with gold and silver, likely top of mind, hitting fresh record highs on safe haven demand and a weakening US dollar. But energy prices are also surging with geopolitical risk and severe weather driving natural gas sharply higher. As a group, broader commodity markets are being reshaped by tariff policy and macro uncertainty. My guest today is John Love, president and CEO at USCF. John, it's great to have you.

SPEAKER_00 2:15

Thanks for having me, Melanie. Great to be here.

Setting The Stage: Markets In Flux

SPEAKER_01 2:18

So to kick things off, natural gas prices have exploded higher following the recent major winter storm that swept across much of the country. I mean, the the weather isn't the sole driver of this move, though. And so what does that tell you about how fragile the natural gas market is right now?

Natural Gas: Weather Shock And Fragility

SPEAKER_00 2:35

Well, you know, a lot of times we get into December, January, um, you will see things where an unanticipated storm like Fern happens, or you know, it enters the, you know, the it starts entering forecasts, and natural gas prices will spike. And a lot of the time that's because we don't know, you know, okay, look, uh, how is this going to end up? Are we going to end up with uh production, you know, damage to production facilities, how much is the draw going to be, that kind of thing. And you usually see a quick spike and then the storm passes and everything comes back to normal. The difference with this one is just the severity of it, um, how long it's lasted, how much of the country was affected, and you know, just how cold uh the temperature has been, and then the impact on the natural gas infrastructure that underlies that. So kind of in these past events, you have the market so saying, well, maybe that could happen, so let's let's spike up. In Fern's case, what you have is uh the market saying, oh, let's spike up, and then, oh, it really is, this really is the one. Let's let's keep going up. And so you have this 140% surge um and the front month future uh just over the last week or so. Um, the other thing that that's going on is uh you know, coming into this, uh we actually had quite a bit of natural gas in storage. Um supplies were ample. Uh that's usually uh been the case over the last um decade and a half or so. This country has plenty of natural gas. We can tap uh more we we were at one point burning off natural gas. Now we're exporting more of it in the form of LNG. But um, you know, basically what's what's uh what's happening now is you've got this this storm is so severe. We actually have LNG export terminals that are importing or have imported natural gas. I think they've reverted to normal now. But you know, bottom line is we went into the storm with a lot of natural gas, and for once it wasn't enough. Um this today an inventory report came out. It it only measures inventory as of last Friday. So next week's report will kind of show us more of the actual impact of the storm. But I think the expectation is that supplies in the U.S. have now been hit and probably will um remain uh you know lower than been expected before the storm. So these these storms, whether you have uh abundant gas or or low gas, it really just depends relative to the uh the size of the hit.

SPEAKER_01 5:00

Yeah, and I mean well, I was looking at the weather last night and that some models are calling for this extreme cold, at least in the north northeast, to uh continue on through the month of February. But John, staying with energy, I mean, oil as well, it's rallied on geopolitical concerns. Brent crude climbing above$70 as tensions over Iran, even at and other supply risks mount. How do you think about energy exposure today given both weather and uh geopolitics?

Storage, LNG Flows, And Inventories

SPEAKER_00 5:26

Well, again, with with crude oil, you had uh significant supply relative to demand. If you look at last year, uh there was actually a gap that opened up between uh supply and demand. OPEC, which had been holding back supply through cuts and quotas since 2022, uh started putting gas, I'm sorry, putting uh crude back in the market in 2025. And you know, they they have said we're gonna be, you know, cognizant of you know price impact and all of that. But nevertheless, you had this gap open up between supply and demand that was pretty significant, about 3 million barrels a day. Um, most of that coming from what OPEC put back on the market. So you have this uh another situation where you have a bit of oversupply, you have concerns about global growth, uh the impact of tariffs, all these macro factors. Uh, but then the geopolitical situation is completely unpredictable. So uh, and you know, it's risen and fallen throughout 2025. Uh you talk uh mentioned Iran. Well, in in June last year when uh the US and Israel bombed Iran, oil was at 65, it went up to about 75. There were concerns Iran might close the Strait of Hormuz. They didn't. So ultimately it came back to about 65 and even you know got lower throughout the year. Well, here we are again. Um it's a huge unknown. Um, what what will uh the administration do? Uh Trump uh I saw a headline today, you know, he's thinking of uh bombing Iran to get protests started again is one thing they're thinking of. So again, I think uh, you know, the last thing Iran really wants to do is close the Strait of Hormuz. But if they're in a no-win situation, that could happen, and that would have a huge effect on uh oil output in the world. About 20% of the world's oil flows through the Strait of Hormuz. So so there's a reason that these risk premiums keep uh keep rising on geopolitical. And that's just one situation. You have, you know, other things that have uh gone on over the last three years around uh around the world, and uh it's just you know, you never know where where it's gonna come from next. Um, there are some situations where it actually has could have the opposite effect, or at least it doesn't have that much of an effect. The the uh situation in Venezuela where we uh went in and captured Maduro didn't really have much of an effect on the oil market. And I think a lot of people are like, well, wait a minute, uh Venezuela's this, you know, huge or was the huge oil producer, and now if we're gonna open back up those markets, isn't oil going to um go down because there's gonna be more supply, or wouldn't there be some kind of rip relief on that? And the reality is Venezuelan oil is uh, you know, they nationalized it twice. So U.S. companies are very reluctant to go back in there. We already have it enough supplies of our own that we don't really need Venezuelan oil. It's also a heavy crude, uh, so it has specific uses, but there's a reluctance to go in there, and even if everyone bowed to the administration and went in right now, it's gonna take years to bring that online. So you have to look at each one of these situations uh individually and and um and kind of measure it. It's it's a it's a tough thing to do, especially when nobody knows what what uh the president or the administration or the uh you know other nations are are gonna do. So it's a challenging thing, but we think that there's uh a reason to have an elevated risk premium and and for that to uh probably stay in place, uh stay in place for a while until things uh if things ever normalize.

SPEAKER_01 8:51

Yeah, and sort of staying on that where nobody knows what uh the the the current administration is going to do and and geopoliticals pivoting a bit to precious metals, uh gold and silver hitting record levels. And that, I mean, is it's also helped by weak dollar tariffs, uh safe haven demand, as I'd mentioned in the intro. What what else is driving these rallies and how much of this geopolitical versus macro monetary policy is playing into things?

Oil: Supply, OPEC, And Risk Premiums

SPEAKER_00 9:14

I think everything's playing in. I mean, over the last couple of years, there there's been a gold rally over the last three years or so, and it's been accelerating. And a lot of that initially was central bank demand. Central banks were to some degree pivoting away from the dollars, a little uncertainty around that, but certainly they were adding to their gold reserves. Um, investors as well seeking uh, you know, there's a lot of gold bugs out there, people seeking safe haven demand. So that that tends to start building on itself. But I think now you just have you know a number of things. You've got uh maybe a perfect storm for precious metals. You've got the stock market at um all-time highs, valuations quite high. Um crypto was uh you know still huge, but people have seen that it's not a sure thing, that there are turnovers, maybe having some some gold other people were avoiding or they're finally capitulating and getting in. So um, so that's you know, kind of what's been driving that is and then the geopolitics, the uncertainty. Now you add to that um silver and platinum had not kept up with gold. Gold was rallying, and typically when you get, you know, there's a certain point when the gold-silver ratio is so high that something has to give. Either gold comes back down, silver goes up. I mean, that can play out over many years, but that finally got triggered very recently, and now silver has been this um insanely runaway commodity up 60% year to date, um, really just blasting off. Platinum was not too far behind. Gold uh as of last night was up a mere 22%. So uh it's it's it's pretty incredible. But I think that uh all of the things in place, we we have a down day in metals today, which is not surprising. Gold has surpassed$5,000, which a lot of people were forecasting is the price level for the end of this year. Now everybody's saying, oh, it's gonna be$6,000, uh, but there could be some pullbacks. Um, you know, that's pretty pretty obvious. I think we're seeing one of those today. But uh I think everything that is in place, we've we've got central banks that have held or you know, bought gold, they're holding on to gold, maybe adding less than they were before. We've got investors seeking safe haven demand, diversification, um, and just the whole global geopolitical uncertainty. Uh, precious metals are just um, you know, this is this is their time when they shine.

SPEAKER_01 11:30

So I sort of adding to that and bringing it all together into an investment strategy, performance across quantity sectors has diverged sharply. How should investors think about as selecting the right commodities exposure instead of just owning broad index exposure?

Geopolitics From Iran To Venezuela

SPEAKER_00 11:46

Well, I think uh, yeah, so that's a great question. Um, if you own just the traditional broad indexes, what you're typically going to get is a high allocation to energy and some other uh some other commodities. And then they'll they'll sprinkle in uh some of the other commodities that you hear about less that are less headline driven. And that's great. I mean, it's a great signal of how the global economy is doing because the way they weight commodities is based on production or liquidity. So, you know, oil is the most important commodity in that respect. Oil and gold are the most talked-about commodities. So traditional indexes are gonna kind of give you that exposure or at least show you what commodity markets are doing in that respect. It there's no market cap in commodities, so that's the way they do it. But it's not necessarily the best way to invest. And what people have done is uh if you really pay attention to commodity markets, you might take a broad position, and then you might um, you know, what a lot of people do is is take a satellite position where a commodity they watch um they might outweigh or something like that. So that's one possibility. The other is um you look at a fund like uh ours, uh SDCI is the ticker, our broad commodity fund, and just let uh let the system uh pick for you. Instead of production weighting or liquidity weighting, what we do, we're looking for scarcity in commodities. We have a price signal that basically says, uh, you know, looking ahead, uh what is likely to be scarce relative to demand and what's likely to be an abundant supply. Let's hold the things that are going to be scarce and let's avoid the things that are gonna be abundant. And on average, uh, we've been able to do that without going into the details, but we hold about uh we rebalance once a month, we hold about half the commodity universe at a time. But we always have exposure to every sector. So we have high beta to broad commodities, and yet we are able to uh give more exposure to things that people will think about, like cocoa and cattle. Um, those were two big in the last two years. Cocoa was up 300% two years ago. A lot of people don't think about cocoa unless they're eating chocolate, but that was the big commodity story in uh 2023 and 2024 and cattle last year. And you know, a lot of people like they focus on the oil, they focus on gold, and all these commodity markets are individual idiosyncratic uh markets. They are all affected by a drought in a particular region or this or that or geopolitics in a different way. So they're they're within a commodity basket themselves, you have a lot of diversification. Uh stocks, you know, they certainly are diversified as well, but they'll they'll tend to run together. Commodities can be all over the place. And we want to try to find the ones that, like I said, are gonna be scarce because if they're scarce, they're more likely to to rise in the future.

SPEAKER_01 14:31

So what how does the lineup deliver specifically to those investors who are specifically income seeking?

SPEAKER_00 14:37

So we uh a few ways. Um I generally wouldn't categorize this as a, you know, this is not a fixed income replacement. Um we do, most of our funds are uh commodity future based, which means we're to it for every dollar we take in, we're putting up uh some dollars uh for futures margin, but the rest we're able to invest in fixed income, and that's typically something uh very safe uh three-month T-bill. So you're earning uh essentially the three-month T-bill rate. So we're getting some income, um, and that's that's typically where commodity returns come from is the underlying spot commodity, the um the fixed income portion, the part that's not invested in collateral, and then uh something called roll yield, which is which is uh a little advanced, but please call us and we'll be happy to explain that one to you. But um on the fixed income side, you know, generally though, we you know, whatever the the the prevailing uh BREMOF T-bill rate is, is what you would earn uh in terms of uh of that. But that's gonna get subsumed by if you have high commodity returns or drastic low commodity returns, um, you know, that that's just one thing that goes into the bucket. We do have a product, um, a gold uh ETF that uh has that we sell options on that. So we do earn some income, uh, generate some income, an additional source of income. So the idea with that one, the ticker is USG, and the idea with that one is that we're trying to give you exposure to gold, but when gold gets toppy or you know goes sideways or even down, maybe there's some income to offset that um that um uh uh that spot price move.

SPEAKER_01 16:18

That's great. I know you mentioned uh investors giving you a call. Before we wrap up, for anyone who's watching who wants to learn more about your research and how USCF approaches commodities and portfolio construction, where can they go to learn about this research and where can they contact you and or your team?

SPEAKER_00 16:33

Sure. Um USCFinvestments.com. That's our website, best place to go. It's got uh everything that you would uh imagine there, some research contacts, so on and so forth. So please go there. We do have things that we send out. We have a sub stack, um, we have a blog, um, but you could find uh all of that centralized on the uh the website.

SPEAKER_01 16:53

Awesome. John, well, thanks so much for the conversation and thanks to everyone for watching. Be sure to like, share, and subscribe for more episodes of Lead Leg Live.