Mixed outlooks and varied performances for different commodities’ asset class should be expected in 2018, according to an ETF Securities’ study.
The detailed commodities sector report said that the positive start to the year for commodities, driven by Iran issues inflating the oil price as well as by a rally in industrial/precious metals and agriculture, should not be interpreted as appositive sign for broad commodities this year.
“Commodities as an asset class are a very heterogenous group and we expect varied performance from each,” the report said.
According to ETF Securities, the downside risks to gold prices in 2018 would be limited because of the depressed real interest rates as inflation would be gaining pace in the US.
However, at the same time, a shock event such as an equity market correction could force gold prices higher.
“On balance we see little change in gold prices in the coming year,” ETF Securities’ head of research and investment strategy, James Butterfill, said.
“Investors continue to be optimistic about gold despite the rising interest rate environment, we believe this is due to investors now seeing gold as an insurance policy from geopolitical concerns rather than investment.”
As far as the crude oil was concerned, the report said the oil price would remain in a range from US$45 to US$60/bbl for 2018, although a significant geopolitical upset in the Middle East could cause temporary price spikes.
“With the US expanding supply and OPEC likely to under deliver on its promise to consistently curb production, we expect the supply to grow,” Butterfill stressed.
“At the same time demand is unlikely to continue to grow at the current pace, with prices having gained 33 per cent over the past year.”
According to the report, the star performer for 2018 would be industrial metals which would most likely benefit from improving emerging market (EM) growth.
At the same time, the supply would be expected to remain in deficit in 2018 due to continued lack of investment in mining infrastructure, the company said.
Butterfill noted that EM demand was crucial for commodity markets as they represented 70 per cent of industrial metal demand.
“In this respect, we expect any weakness in commodity prices to be largely offset by solid demand growth, again led by China,” he said.
“Although concerns remain over the build-up of debt, Chinese policymakers have continued to show a willingness to support the financial system with stimulus to ease financial conditions.”
