(Kitco News) \u2013 U.S.-Iran negotiations remain the most important driver of commodity markets in the near term, and an allocation to commodities can help investors hedge against inflation and energy supply shocks over the medium term, according to Giovanni Staunovo, commodity analyst at UBS.<\/p>\n
In a new update published Monday, Staunovo wrote that commodity market volatility is likely to remain elevated in the near term, but these fluctuations have also added up to significant gains across the complex.<\/p>\n
\u201cThe price of Brent crude oil hit a four-year high of USD 126\/bbl on 30 April; it was trading around USD 93\/bbl at the time of writing,\u201d he noted. \u201cGold prices are currently around 16% below their all-time closing high in January, with higher rate expectations since the escalation of tensions weighing on sentiment.\u201d<\/p>\n
\u201cBroad commodities have gained more than 20% year to date, based on the UBS CMCI Composite total returns index in US dollars,\u201d he noted.<\/p>\n
Staunovo said that as the current geopolitical risk premium fades, the underlying fundamentals for oil, gold and base metals look supportive.<\/p>\n
\u201cOil product inventories are running low in various economies and could necessitate even higher prices to ration demand before stocks are refilled,\u201d he said. \u201cOver the medium term, we expect gold to move higher amid elevated global debt burdens, persistent fiscal deficits in the US, and continued reserve diversification trends. We project further supply shortages for copper and aluminum, which should support prices over the medium term, while structural drivers (e.g., electrification) underpin long-term demand.\u201d<\/p>\n
Staunovo said that UBS continues to favor commodities in 2026, with a focus on active management.<\/p>\n
\u201cCommodities can face periods of volatility, but they can also play a valuable role in portfolios, as they have historically shown low correlation with equities and bonds,\u201d he said.<\/p>\n
Just last week,\u00a0UBS cut its year-end 2026 gold price forecast from $5,900 to $5,500 per ounce<\/a>, citing risks of persistent headwinds from elevated Treasury yields and sustained U.S. dollar strength.<\/p>\n UBS analysts Dominic Schnider and Wayne Gordon said that investors are shying away from the yellow metal as yields stay high.<\/p>\n \u201cMarkets are rediscovering the concept of opportunity cost, with gold\u2019s non-yielding characteristics once again becoming a more important consideration as real rates remain elevated,\u201d they wrote in a note.<\/p>\n Schnider and Gordon noted that both ETF and futures demand has softened significantly, and the recent stabilization in flows is not yet sufficient to restore the strong upward momentum gold enjoyed earlier in 2026.<\/p>\n While UBS does not believe the structural gold bull market is over, the analysts said investors may require greater patience in the face of these challenges. Still, the analysts project gold will finish the year $1,000 higher than its current price.<\/p>\n CHART<\/p>\n Looking ahead to 2027, Schnider and Gordon said that a more neutral monetary policy backdrop could weaken support for the dollar and improve investor appetite for gold once again.<\/p>\n On April 13, UBS commodity analyst Giovanni Staunovo said that\u00a0commodities such as gold and oil will likely continue to deliver outsized price gains long after the Iran war is over<\/a>, and investors sitting on substantial gold positions should consider broadening their commodity exposure.<\/p>\n In a research note, Staunovo analyzed the impact of the ongoing Middle East conflict on the commodity sector.<\/p>\n \u201cContinued tensions in Iran and risks in the Strait of Hormuz have added upside pressure to both prices and volatility in commodities, most notably oil,\u201d he wrote. \u201cWe continue to see upside for commodities, driven by fundamentals and supply-demand imbalances alongside further geopolitical risks. Maintaining an allocation to commodities, with a focus on active management, can help investors hedge against inflation and energy supply shocks.\u201d<\/p>\n Staunovo noted that Brent crude was trading around $72 per barrel before the strikes on Iran, but was $102 per barrel at the time.<\/p>\n \u201cGold prices are currently just under 13% below their all-time closing high in January, with higher rate expectations since the escalation of tensions weighing on sentiment,\u201d he said. \u201cBroad commodities have gained around 17% year to date, based on the UBS CMCI Composite total returns index in US dollars.\u201d<\/p>\n Staunovo said that even though the geopolitical risk premium is expected to fade, the fundamentals for commodities look supportive.<\/p>\n \u201cOil product inventories are running low in various economies and could necessitate even higher prices to ration demand before stocks are refilled,\u201d he said. \u201cOver the medium term, we would still expect gold to rally substantially if geopolitical uncertainty remains high while interest rate expectations come down.\u201d<\/p>\n He added that UBS is projecting further supply shortages for copper and aluminum, supporting prices over the medium term even as structural drivers such as electrification underpin long-term demand.<\/p>\n Staunovo noted that commodity returns \u201ccan be strong when supply-demand imbalances or macro risks, such as inflation or geopolitical events, are elevated.\u201d<\/p>\n \u201cFor investors with an affinity for gold, we believe a modest allocation can enhance diversification and buffer against systemic risks,\u201d he said. \u201cFor investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return, in our view.\u201d<\/p>\n On March 16, commodity analysts at UBS predicted that the updated calculus of risk, interest rate policy, inflation, and strong underlying demand will still propel the yellow metal as high as $6,200 per ounce by the end of 2026<\/a>.<\/p>\n