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UBS Bullish on Oil, Gold, and Copper Amid Geopolitical Uncertainty

UBS reaffirmed its optimistic stance on oil, gold, and copper amidst escalating geopolitical tensions in the Middle East.

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The recent surge in tensions was triggered by Israel’s airstrike over the weekend, resulting in casualties near the city of Rafah, according to Gazan health officials.

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In a note led by Mark Haefele, UBS strategists emphasized the potential of commodities like oil and gold as geopolitical hedges. They highlighted a positive outlook for these assets based on both geopolitical concerns and underlying fundamentals. Anticipated lower US interest rates coupled with a modest restocking cycle are anticipated to bolster global industrial activity, lending support to commodities.

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UBS projects robust oil demand, with an anticipated expansion of 1.5 million barrels per day (mbpd) this year, surpassing the long-term annual growth rate of 1.2 mbpd. Despite concerns regarding rising oil inventories attributed to a milder winter and increased March exports by some OPEC countries, early May witnessed OPEC crude exports at their lowest since August 2023. Compliance with the OPEC+ production cut deal remains pivotal, with Russia planning deeper cuts to offset April overproduction. UBS anticipates an extension of the current production cut by OPEC+ for at least another three months at the upcoming June 2 meeting.

In the realm of precious metals, UBS foresees sustained support for gold prices, driven by continued demand from global central banks and China. Central bank demand is expected to range between 950 to 1,000 metric tons this year, an increase from previous estimates following record first-quarter purchases. Geopolitical uncertainties and the anticipated easing cycle by the Federal Reserve later this year are poised to further bolster gold ETF inflows. UBS raised its year-end price forecast for gold to USD 2,600/oz and recommends buying on dips around USD 2,300/oz or below.

Copper also garners UBS’s favor, with ongoing supply issues and China’s efforts to stabilize the housing market supporting its prices. UBS projects a deficit of 390,000 metric tons for 2024 and 2025, with prices expected to reach USD 11,500/mt by year-end and USD 12,000/mt by mid-2025. The bank advises investors to maintain long positions in copper and capitalize on buying opportunities.

In conclusion, UBS envisions higher commodity prices ahead, forecasting total returns of approximately 10% for broad commodity indexes over the next six to 12 months.

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