Giovanni Staunovo Dominic Schnider

Sideways trading in August
Our benchmark UBS CMCI index fell 0.6%during the month, driven by lower metal prices. Energy was the only sector with a positive performance. The asset class has, however, delivered a positive return in the first few days of September, with the UBS CMCI Total Return standing at the highest level since June 2022. We see further gains for commodities as a whole into year-end and target low-teens total returns on a 12-month basis.

Saudi Arabia and Russia extend their extra voluntary supply cuts until the end of the year
Saudi Arabia is curbing its production by an extra 1mbpd, and Russia is reducing its crude exports by 0.3mbpd. With OPEC+ signaling it wants to remain in control of the oil market, the voluntary extra cuts will be reviewed monthly and could be deepened or reduced depending on market conditions. With the production cut extended, we anticipate a market deficit of more than 1.5mbpd in 4Q23. So, with oil inventories set to fall further over the coming months, we expect Brent to rise to USD 95/bbl by year-end.

Structural factors put the base in base metals
Exchange inventories at multi-year lows, ongoing supply-side disappointments, and structural demand drivers have offset weaker global manufacturing and disappointing China data. We believe these longer-term dynamics will shield metal prices from larger pullbacks. In fact, our supply and demand estimates still point to an undersupplied market for most metals this year, which favors higher prices into 2024 as industrial activity stages a modest recovery.

Central bank buying a backstop for gold
Near-term headwinds like higher US yields and USD strength are pressuring ETF demand. But we think central bank buying will counterbalance these pressures—likely buying another 700 metric tons this year—while we await easier policy guidance from the Fed. An annual amount of this magnitude would be the second-highest since the 1960s (only to 2022). So, we reiterate gold's diversification benefits in a portfolio context and expect prices to rise toward USD 2,200/oz by mid-2024.

Agricultural prices don’t reflect heightened risks
Record-breaking global temperatures, attacks on Black Sea grain infrastructure, and regional supply mismatches did not prevent grain prices from tumbling to new year-to-date lows. We believe elevated Russian and Brazilian inventories have bred complacency among consumers. But supply downgrades across key producers should drive higher grain prices (by around 10%), while soft commodities will likely stay elevated amid persistent El Niño risks.

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