UBS Group released a report on Wednesday, July 24th, stating that the gold price is expected to reach $2,600 per ounce by the end of 2024 and $2,700 per ounce by mid-2025, currently at $2,272 per ounce. The target for LME copper price in the next 12 months is $12,000 per ton.
In recent weeks, concerns about weak demand have weighed on commodity prices. Brent crude oil prices have fallen by about 7% from their early July levels, while industrial metal prices have fallen by nearly 9%.
However, due to strong demand and limited supply, UBS expects commodity prices to continue to rise, and this asset class is expected to bring strong diversification benefits to investment portfolios.
The report believes that oil exports have declined due to healthy demand in other areas. The latest data shows that Russia's crude oil exports in the first two and a half weeks of July fell to a multi-year low. Although domestic oil demand in Russia usually increases in the summer, this decline seems to be larger than the usual seasonal pattern. UBS believes that this indicates that Russia has made some compensatory production cuts to comply with OPEC+'s decision, as Russian refineries have recovered from several drone attacks. In addition, due to hot weather in the Middle East, OPEC's crude oil exports in July have declined from the low level in June, but overall demand remains healthy. UBS believes that the reduction of OPEC+ crude oil exports should help tighten the oil market and maintain the year-end Brent crude oil price target at $87 per barrel.
The report believes that gold still has greater upward potential. After reaching a historic high last week, the price of gold has taken a breather, but the factors that have driven the price of gold up still exist, including the strong buying interest of central banks, the continued uncertainty of geopolitics, and the possibility of the Federal Reserve cutting interest rates in the coming months. UBS expects the gold price to reach $2,600 per ounce by the end of this year and $2,700 per ounce by mid-2025, currently at $2,415 per ounce. UBS believes that for investors, allocating gold in investment portfolios is an attractive diversification investment and hedging tool.
The report points out that copper prices should be supported in the market where supply is insufficient. Although global manufacturing data has been disappointing, industrial metals remain under pressure. UBS reiterated its target for LME copper prices in the next 12 months is $12,000 per ton, as energy-related transformation demand remains strong and supply is still disappointing. UBS expects manufacturing to show greater growth in the second half of this year and in 2025, which should also support the market's deficits.
Therefore, UBS recommends that investors consider opportunities in the commodity sector to increase and diversify investment portfolio returns. In addition, adopting an active strategy for commodities can also help investors effectively navigate the market and potentially improve risk-adjusted returns.