Commodities rip-roaring rally set to continue; buy dips in copper, UBS says

Investing.com -- Commodities including gold oil, and copper have been on rip-roaring rally and could be set for more gains, underpinned by positive fundamentals including demand amid supply and geopolitical issues and potential U.S. rate cuts ahead. 

"[W]e see higher commodity prices ahead, and expect total returns of around 10% for broad commodity indexes over the next six to 12 months," analysts at UBS said in a Tuesday note, adding that its broad commodity UBS CMCI Composite Index has risen nearly 11% year-to-date.

Oil demand remains strong 

Oil remains its preferred commodity in which to seek exposure, UBS said, downplaying recent oversupply concerns as OPEC  members are showing a stronger adherence to voluntary supply curbs of 2.2 million barrels a day, or mbpd.

"OPEC crude exports in the first 19 days of May stood at the lowest level since August 2023, and compliance with the OPEC  production cut deal remains important," UBS said. 

On the demand front,  real-time mobility data indicates healthy oil demand, UBS says, forecasting an expansion of 1.5 million barrels per day this year, above the long-term annual growth rate of 1.2mbpd.

Gold to continue to glitter

Gold's glittering Q1, meanwhile, will likely continue as central bank buying, particular from the People's Bank of China. of the yellow metal is likely to continue at a time when demand for protection from geopolitical uncertainties are on the up and up. 

Demand for gold as hedges should remain healthy, UBS adds, amid geopolitical uncertainties from wars in the Middle East to US-China trade tension.

Gold is also likely to get a boost from Federal Reserve rate cuts expected later this year, UBS, driving more inflows into gold exchange traded funds.

Stay long copper, buy on dips as supply challenges to keep the red metal soaring 

Copper prices have hit a speed bump since as short squeeze took prices to record highs, but the positive fundamentals including limited supply remain intact, UBS says,  prices to reach $11,500 per metric ton by year-end, and $12,000/mt or above by mid-2025.

"We recommend investors to stay long the metal and add on dips," UBS added, flagging a lack of progress in resolving the metal’s supply challenges. "China’s renewed policy emphasis on stabilizing housing should support investor interest," UBS added.