Oil & Gas Rises

Oil and Gold: The Top Commodities to Watch in 2024

Oil & Gas Rises
Gold Commodities

 

Oil and Gold: The Top Commodities to Watch in 2024 as it promises to be another busy year in the commodities market amid soaring geopolitical risks, changing fundamentals, and monetary policy uncertainty. The market was under immense pressure in 2023 as central banks around the globe embarked on aggressive monetary policy tightening in the race to tame runaway inflation. While the US has succeeded in taming inflation, a high-interest rate environment at 22-year highs poses the most significant risk to the economy, which could influence demand and supply for crucial commodities.

In addition to changes in the monetary policy outlook, the commodities market outlook is on edge amid soaring geopolitical risks around the globe. Soaring tensions in the Middle East in the Gaza Strip already threaten to affect the global supply chain, with ships constantly under attack along the Arabian Sea. Oil is one commodity that is constantly on the spot as the tensions in the Gaza Strip threaten to get out of hand.

While commodities were the best-performing asset classes in 2021 and 2022 as the global economy bounced back from the COVID-19 pandemic, the same cannot be said about 2023. The sector underperformed in 2023 as focus shifted to equities that were on a roll, with the S&P 500 recouping most of the losses accrued in 2022 to finish the year up 24%.

Enters 2024, a year likely to be pivotal for commodities, most of which remained resilient amid uncertainties in 2023. Top on the list is a U-turn in the Federal Reserve tightening policy, with interest rates expected to fall from current highs of 5.25% to 5.50%. A cut in interest rates is likely to support the world’s largest economy, something that should have a significant impact on most commodities.

Brent Crude Oil Above $80

Crude oil was the subject of wild swings in 2023 amid changing underlying fundamentals. Oil started 2023 at highs of $95 a barrel but dropped significantly in the first half of the year as expectations for a post-pandemic economic boost from China did not materialize.

Faced with the prospects of further price drops in the second half of the year, Russia and Saudi Arabia, some of the biggest producers, imposed production cuts to curtail further price drops amid slowing demand. The cuts have helped offer support to prices above the $70 a barrel-level

Amid the production cuts and simmering geopolitical tensions in the Middle East, oil prices can potentially find support above the $80-a-barrel level. Major investment banks led by JPMorgan and Goldman Sachs expect oil prices to average more than $80 a barrel level in 2024, supported by a resilient global economy that has so far stayed clear of recession.

Geopolitical tensions in the Middle East, which often affect production and supply, are another major catalyst that could support oil prices. The easing of monetary policy tightening expected to support global economies could also raise prices, leading to oil prices above the $90-a-barrel level in the year’s second half.

Gold to Record Highs

Gold was on a roll in 2023, surging 13% and posting its biggest gain since 2020. The increase came from rising interest rates and a stronger dollar. Nevertheless, the non-yielding asset benefited from soaring geopolitical tensions that triggered strong demand for safe havens. While the yellow metal rallied to record highs amid a challenging market environment, prospects are high that it has what it takes to go even higher.

Gold investors anticipate record gold prices in 2024, banking on fundamentals of a dovish pivot in the US. One factor that could favor higher gold prices in 2024 is the prospect of a lower interest rate that reduces the opportunity costs of holding no-yielding assets. The ReelShares Precious Metals Fund might be the best fund for anyone looking to diversify their investment portfolio into the precious metals sector and gain exposure to gold.

The precious metal ended 2023 on a solid footing amid growing expectations that the US Federal Reserve would cut interest rates in the year’s first half. The prospects of interest rate cuts have already triggered a weaker US dollar, which favors higher gold prices. In addition, investors have started shifting their attention from treasuries and bonds, given the ever-growing prospects of lower interest rates in 2024

After hitting record highs of $2135 an ounce on monetary policy easing expectations in 2203, JPMorgan analysts expect the yellow metal to surge to record highs of $2,300 an ounce in 2024. On the other hand, UBS expects gold to rise to highs of $2,150 on interest rate cuts materializing. The World Gold Council expects gold prices to gain about 4% in 2024 following 75 to 100 points of rate cuts.

Bottomline

The commodities market in 2024 faces a complex and uncertain situation, influenced by various factors such as geopolitics, monetary policies, and fundamentals. The events of 2023 have prepared the ground for a crucial year ahead, with possible changes in the Federal Reserve’s policy. Brent Crude Oil and Gold, both affected by global and regional forces, will be key commodities to watch. Investors should be ready for both opportunities and challenges as they follow these commodities.

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