Il first quarter of 2024which will end in a few days, was positive for several raw materials. This applies to energy commodities such as oil, but also to metals such as gold or copper. According to analysts at Goldman Sachslo scenario could further improve during the year, thanks also to the Fed and ECB interest rate cutswhich should encourage demand from businesses and consumers.
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The current situation on raw materials
The exacerbation of geopolitical tensions that we have witnessed in recent days has partially slowed down oil prices, which however remain on a strong rise since the beginning of the year. In particular, the Brent travels close to 86 dollars a barrel and the Wti just under $82respectively at +14% and +12% in 2024.
Prices recovered today, following weakness related to the terrorist attack in Russia over the weekend. Meanwhile, Ukraine’s continued drone attacks on Russian oil refineries keeps the risk premium for the oil market higher.
Gold fluctuates around $2,180 an ounce, up more than 5% since the beginning of the year, after reaching historic highs above $2,200 last week. The other precious metal par excellence, silver, also used in various industrial applications, also increased, while copper momentarily exceeded $9,000 per ton, returning to the levels of a year ago.
Gas prices, however, are decreasing, thanks to a rather mild climate in Europe which has led to a low absorption of the reserves stored for the winter season.
The macro factors supporting commodities
Goldman Sachs maintains “selectively constructive” approach on raw materials, supported by three factors: the cyclical and structural support for demand and the role of raw materials in hedging against geopolitical risks.
Despite the very variable rigidity between the different commodities, the recovery of the manufacturing sector and lowering interest rates tend to stimulate demand. This particularly applies to industrial metals and cyclical petroleum products.
The investment bank expects a consolidation of Brent prices, which have already reached the summer peak forecast of 87 dollars a barrel and exceeded the fair value estimate by around 4 dollars, but continues to see value in crude oil and petroleum products . Overall, the outlook remains bullish on energy commodities, except gas, and on industrial metals, excluding zinc and nickel.
Rate cuts benefit raw materials
Il total return of raw materials since the beginning of the year it stands at 9%, but for Goldman it could rise to 15% by the end of the yearwith peaks of 20% for some assets.
This, as mentioned, thanks to cutting financing costs by the US Federal Reserve and the ECB, to recovery of manufacturing production (with the lows of the PMI indices now behind us) and ai persistent geopolitical risks. China’s commitment to supporting the recovery can also represent a positive factor for commodities.
Copper, aluminum, gold and petroleum products will rise according to Goldman, which instead remains bearish on battery metals such as nickel, cobalt and lithium carbonate. Investors must therefore remain selective, as the gains will not be universal.
“US rate cuts in non-recessionary environments lead to higher commodity prices, with a bigger boost for metals (copper and gold in particular), followed by crude oil,” analysts say. “Importantly, the positive impact on prices tends to increase over time as growth momentum from more flexible financial conditions takes hold.”
Price targets according to Goldman
Goldman’s end-2024 targets indicate a level of $2,300 per ounce for gold, thanks also to the expected easing of the Fed, which should reactivate purchases of ETFs on the yellow metal. Upward targets also for coppera $10,000 per tonand for aluminum, at 2,600 dollars/tonne.
Il Brent oil is expected in the upper part of the range 70-90 dollars per barrel.
Other brokers have also forecast a favorable scenario for raw materials in the remainder of 2024. According to Macquarie, commodities are entering a new phase of cyclical recovery, supported by the reduction in supply and the recovery of the global economy. Jeff Currie, formerly of Goldman and now at Carlyle, predicted gains when the Fed cuts rates, while JPMorgan focused on gold’s bullish potential.