Head of Commodity Strategy
Summary: Commodities poised for rebound. The "Year of the Metal" boosts gold and silver, copper awaits rate cuts. Grains may recover, natural gas stabilises. Gold targets $2,300-$2,500/oz, copper's breakout could signal growth.
A year-long consolidation phase, following the surge from 2020 to 2022, during which the Bloomberg Commodity Total Return Index more than doubled in response to a post-pandemic growth sprint supported by rock-bottom central bank rates, shows signs of maturing. In Q1, the index traded close to unchanged for a fifth consecutive quarter as some sectors remained under pressure while others flourished. As we approach a quarter that may see rate cuts from major central banks, led by the US Federal Reserve and the European Central Bank, and the first rate hike in Japan since 2007, the prospect of a softer dollar and lower funding costs to support growth could end up being the triggers supporting a broad bounce.
Excluding natural gas, down around 25% on the year, commodities would be up around 2.5%. With announced production cuts from major US producers of natural gas starting to lower an overhang of supply in the coming months, we no longer see gas dragging the index lower. In addition, prospective growth-supportive rate cuts, a well-supported crude oil market, and an oversold grains sector raise the risk of a rebound into the important northern hemisphere planting and growing season, increasing prospects for the mentioned index to deliver a positive return in the coming months.
The shown ETF is for inspiration only and is one among several ETF’s tracking the Bloomberg Commodity Total Return Index.
In our Q1 outlook, we talked about 2024 becoming the year of the metals with a focus, among others, on gold, silver, and copper. So far, this prediction has worked well for precious metals, the second-best performing sector after surging softs, and has been realised somewhat earlier than anticipated with continued headwinds from elevated Treasury yields and reduced US rate cut expectations. Gold still managed to rally strongly, reaching a fresh record, supported by strong physical demand from central banks and retail investors in Asia. While some of this demand may slow in Q2 as investors adapt to a higher gold price, the prospect for lower funding costs may finally see demand for bullion-backed, exchange-traded funds from real money asset managers pick up for the first time since 2022.
We maintain our 2024 call on gold to reach USD 2,300 per ounce, with the technical picture pointing to a level as high as USD 2,500. In line with this, we lower our silver target by two dollars to USD 28.
The combination of lower funding costs as interest rates finally start to come down, driving a long-overdue period of industry restocking, and China continuing to support its ailing economy, could see selected industrial metals do well in the coming months. Copper, range-bound for almost a year, remains our favourite industrial metal. This is due to expected robust demand, as seen in China this past year, which has kept exchange-monitored stocks near a multi-year low, and due to the increasing risk of supply disruptions and production downgrades. Most of the major miners are dealing with rising labour and construction material costs, as well as lower ore grades as mines mature.
As mentioned, we continue to favour copper, the so-called "King of green metals" given its usage in multiple applications. The first sign of a move away from its year-long, range-bound behaviour would be a break above USD 4.3 per pound in High Grade and USD 9,500 per ton in LME. A successful break may, in our opinion, lead to a fresh record being reached later in the year.
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)