Fundamentals to support rising oil and gold prices: UBS By Investing.com

Investing.com — Oil and prices have retreated in recent days after a strong rally, driven by rising geopolitical tensions in the Middle East.

is down 1.1 percent so far this week amid reports of a potential ceasefire between Hezbollah and Israel. At the same time, concerns about Chinese demand have resurfaced due to a lack of details on stimulus from Beijing.

Despite ongoing geopolitical risks, which are expected to maintain a risk premium in the price of both commodities, UBS strategists believe fundamentals will continue to support higher oil and gold prices in the coming months.

In the oil market, supply growth remains modest, keeping the market in deficit. According to the latest data from the International Energy Agency (IEA), global oil production rose by just 0.3% between December 2023 and July 2024.

The IEA also revised its 2024 supply growth estimate down from 1.8 million barrels per day (mbpd) in December to just 0.7 mbpd in September. In addition to OPEC+’s extended voluntary production cuts, supply growth in the US and Brazil also slowed.

For 2025, UBS expects another year of subdued US oil production, driven by lower prices, uncertainty over OPEC+ barrel recovery and a continued focus on capital discipline.

“Demand growth, while suffering from China, continues to drive supply growth, with global oil inventories still declining,” UBS strategists note.

In addition, monetary policy easing by major central banks “should also support economic growth and oil demand next year,” they added.

As such, UBS remains bullish on oil prices, forecasting Brent crude to rise above $80 a barrel in the coming months.

Similarly, the demand for gold is also expected to increase.

While markets have tempered expectations of Federal Reserve interest rate cuts, the central bank has already begun its easing cycle, with more cuts expected. Historically, gold has risen as much as 10% in the six months following the Fed’s first rate cut, and demand for gold ETFs is growing.

“Underlying demand from Chinese investors remains solid, while jewelry consumption should see a seasonal rebound in the coming months,” UBS points out.

They also point to strong buying by central banks and believe that uncertainty around the US election will further support gold prices.

Strategists expect gold to reach $2,850 an ounce by mid-2025.