Commodities
Outlook: Heightened geopolitical tensions have led markets to search for safe havens, of which gold is usually favoured. The conflict in the Middle East also adds to the upside pressure on oil prices. We expect high short-term volatility in oil, rising dispersion in metals and modest upside potential in gold.
Preferences: Consider gold and other commodities as a buffer against geopolitical risk and inflation.
Amundi Physical Gold ETCTotal Expense Ratio 0.12%**
Gold prices headed upwards in the fourth quarter as investors assessed the potential impact of the Middle East conflict on the global economy.
Since gold generates no income, compared to other traditional assets, the price of the precious metal tends to rise when the ‘opportunity cost’ of holding it is low. However, this relationship has collapsed in recent months. The premium in gold prices seems to have been fuelled by additional demand for tail risk insurance lately rather than traditional financial drivers.
Besides geopolitics, a central bank pivot would be a key support to gold prices, but partially neutralised by the effects of quantitative tightening and by efforts to reduce deficits. We thus expect prices to remain elevated in the short-term. Longer-term, pressure on DM debt and dollar diversification trends would become more relevant. Therefore, gold may be a potential source of resilience against geopolitical risks.
Overall, gold’s low correlation to other asset class returns can potentially help to lower overall portfolio volatility. It allows for increased diversification and can enhance the risk-adjusted return in a multi-asset portfolio.20
Gold prices tend to hold up during periods of heightened market volatilityGold vs. equities
Some commodities may help to increase portfolio resilience against the effects of inflation. Although oil will likely be affected by a short-term upside from geopolitics and supply deficit, our base case is that despite some initial shocks in oil prices, the conflict in the Middle East will likely not result in major shifts.
The economic deceleration will likely keep base metals’ prices capped, at least in the first half of 2024. As the year progresses, we see dispersion rising through the year, driven by metals’ supply/demand dynamics, their exposure to the energy transition, China construction, and world manufacturing.
Amundi Bloomberg Equal-Weight Commodity Ex-Agriculture UCITS ETFManagement fees: 0.30%*
