Investing.com — Oil and gold prices have recently retraced after a strong rally, driven by escalating geopolitical tensions in the Middle East.
Potential Ceasefire and Chinese Demand Concerns:
Gold has seen a 1.1% decline this week due to reports of a potential ceasefire between Hezbollah and Israel. Additionally, worries about Chinese demand resurfaced as Beijing has yet to provide stimulus details.
Geopolitical Risks vs. Fundamental Factors:
Despite ongoing geopolitical risks that are expected to maintain a risk premium in commodity pricing, UBS strategists believe that fundamental factors will continue to support higher oil and gold prices in the months ahead.
Oil Market Dynamics:
In the oil market, supply growth remains modest, leading to a market deficit. The latest data from the International Energy Agency (IEA) shows a minimal increase of global oil production from December 2023 to July 2024. The IEA has revised its 2024 supply growth estimate downward and UBS expects subdued U.S. oil output in 2025.
Positive Outlook:
UBS remains positive on oil prices, forecasting Brent crude to surpass $80 per barrel soon. They also anticipate increased demand for gold, with a forecast of gold reaching $2,850 per ounce by mid-2025.
Insight on Gold Demand:
UBS points out that underlying demand from Chinese investors remains strong, and jewelry consumption is expected to recover in the coming months. Central bank purchases and uncertainty surrounding the U.S. election are also seen as factors that will support gold prices.
Central Bank Policies:
UBS highlights that monetary policy easing by major central banks should support economic growth and oil demand next year, further bolstering the positive outlook for both oil and gold prices.
