UBS reiterated positive views on oil and gold, and geopolitical tensions in the Middle East show no signs of easing.
According to health officials in Gaza, tensions in that region have escalated again after Israel launched an airstrike last weekend that killed at least 40 people in a tent near the city of Rafah.
“We believe that commodities such as oil and gold remain potentially useful geopolitical hedges,” UBS strategists led by Mark Haefele said in a note.
“We also maintain a positive outlook for this asset class based on the fundamentals. “Likely lower US interest rates this year and a modest restocking cycle bode well for a more sustainable recovery in global industrial activity,” she added.
UBS strategists expect oil demand to remain strong with an expected expansion of 1.5 million barrels per day (mbpd) this year, surpassing the long-term annual growth rate of 1.2 mbpd.
Despite concerns about rising oil inventories due to a milder winter and increased exports in March by some OPEC countries, OPEC crude oil exports in early May were the lowest since August 2023. Compliance with the OPEC+ production cut agreement is crucial importance, and Russia is planning bigger cuts to compensate. the overproduction in April.
The bank believes that OPEC+ will extend the current production cut for at least another three months at its upcoming June 2 meeting.
Meanwhile, gold prices should also remain well supported amid continued demand from global central banks and China, strategists said.
They have raised central bank demand forecasts to 950-1,000 tonnes from 800 to 850 tonnes this year, following record purchases in the first quarter. Strong buying continues in China, and geopolitical uncertainties are driving demand for gold as a hedge. Additionally, the Federal Reserve’s expected easing cycle later this year should boost inflows into gold exchange-traded funds.
“We recently raised our year-end gold price forecast to $2,600/oz, and recommend buying on dips around $2,300/oz or lower,” strategists noted.
They also believe there is further upside room for copper as ongoing supply issues and China’s focus on stabilizing the housing market bode well for commodity prices.
UBS estimates a shortfall of 390,000 tonnes for 2024 and 2025, with prices expected to reach USD 11,500/mt by the end of the year and USD 12,000/mt by mid-2025.
“We recommend investors stay long the metal and add dips,” strategists wrote.
“We foresee higher commodity prices and expect total returns of around 10% for the broad commodity indices over the next six to 12 months,” she added.
By Vahid Karaahmetovic
