Geopolitical tensions in the Middle East persist unabated, driving UBS to reaffirm its bullish stance on key commodities including oil, gold, and copper.
The recent escalation in tensions was underscored by Israel’s airstrike over the weekend, which resulted in casualties near the city of Rafah, according to Gazan health officials.
Mark Haefele, leading a team of UBS strategists, emphasized the strategic value of commodities like oil and gold as geopolitical hedges. Their positive outlook extends beyond geopolitical factors, with a favorable assessment of the asset class based on robust fundamentals. Anticipated lower US interest rates in the current year, coupled with a modest restocking cycle, signal a promising trajectory for global industrial activity, according to the UBS analysts.
Expectations of strong oil demand persist, with UBS forecasting an expansion of 1.5 million barrels per day (mbpd) in 2024, surpassing the long-term annual growth rate of 1.2 mbpd. Despite concerns over rising inventories attributed to a mild winter and increased March exports by select OPEC nations, early May witnessed OPEC crude exports at their lowest since August 2023. The analysts stress the importance of compliance with the OPEC+ production cut deal, highlighting Russia’s plans for deeper cuts to offset previous overproduction. UBS anticipates an extension of the current production cut by OPEC+ for at least another three months at the upcoming June 2 meeting.
Gold prices are expected to remain robust, buoyed by sustained demand from global central banks and China. UBS analysts revised their demand forecast for central banks upward to 950–1,000 metric tons for the year, citing record first-quarter purchases. Persistent geopolitical uncertainties continue to drive demand for gold as a hedge, augmented by anticipated inflows into gold exchange-traded funds amidst the Federal Reserve’s expected easing cycle. The UBS strategists recently raised their year-end price forecast for gold to USD 2,600/oz, recommending buying on dips around USD 2,300/oz or below.
Copper, buoyed by ongoing supply issues and China’s efforts to stabilize the housing market, is poised for further upside potential, according to UBS. A projected deficit of 390,000 metric tons for 2024 and 2025 underpins UBS’s bullish outlook, with price targets set at USD 11,500/mt by year-end and USD 12,000/mt by mid-2025. The analysts advise investors to maintain long positions in copper and capitalize on buying opportunities during market downturns.
In conclusion, UBS forecasts higher commodity prices in the near term, projecting total returns of approximately 10% for broad commodity indexes over the next six to 12 months.
