UBS Positive Outlook on Oil, Gold, and Other Commodities Amid Geopolitical Tensions
Oil Demand and Market Dynamics:
UBS reiterated its positive views on oil, gold, and other commodities in light of ongoing geopolitical tensions in the Middle East. The recent escalation in tensions, highlighted by Israel’s airstrike near Rafah, has heightened concerns about supply disruptions. UBS strategists anticipate a strong demand for oil, projecting an expansion of 1.5 million barrels per day this year. Despite some concerns about rising inventories and export levels, OPEC’s efforts to maintain production cuts and the potential for deeper cuts by Russia indicate a supportive environment for oil prices.
Insight: The ongoing geopolitical risks and supply dynamics in the oil market underscore the importance of maintaining a diversified investment portfolio that includes exposure to commodities like oil and gold, which can serve as effective hedges against uncertainty in the global economy.
Positive Outlook for Gold:
In addition to oil, UBS sees a positive outlook for gold, attributing its stance to sustained demand from global central banks and China. The bank has raised its demand forecast for central banks for this year, reflecting strong buying trends and the hedging preferences in the face of geopolitical uncertainties. Furthermore, expectations of easing cycles by the Federal Reserve are likely to drive inflows into gold exchange-traded funds, supporting the bullish outlook for gold prices.
Insight: The interplay between central bank actions, macroeconomic factors, and geopolitical risks underscores the unique role that gold plays as a store of value and a safe-haven asset, making it an attractive option for investors seeking stability and diversification in their portfolios.
Copper Market Dynamics and Price Forecast:
UBS also sees potential in the copper market, noting ongoing supply issues and China’s efforts to stabilize the housing market as factors supporting copper prices. The bank estimates a deficit in copper supply for 2024 and 2025, projecting price levels to reach new highs by the end of the year and into 2025. Despite potential fluctuations, UBS recommends investors to maintain long positions in copper and capitalize on buying opportunities.
Insight: The projected growth in copper prices reflects the intrinsic link between industrial demand, supply dynamics, and macroeconomic trends, highlighting the importance of considering a range of factors beyond short-term price movements when assessing investment opportunities in commodities.
Overall, UBS remains optimistic about the outlook for commodities, forecasting total returns of around 10% for broad commodity indexes over the next six to 12 months. This positive outlook is underpinned by a combination of geopolitical tensions, supply dynamics, and macroeconomic factors shaping the commodity landscape.
By Vahid Karaahmetovic
