Oil and Gold Price Trends

Oil and gold prices have recently retreated after a strong rally, influenced by rising geopolitical tensions in the Middle East.

Oil Market Overview

Brent crude has declined by 1.1% this week, following reports of a potential ceasefire between Hezbollah and Israel. Concerns regarding Chinese demand have also resurfaced due to a lack of stimulus from Beijing.

Despite the ongoing geopolitical risks, which are expected to maintain a risk premium in pricing, UBS strategists believe that fundamental factors will continue to propel higher oil and gold prices in the upcoming months.

Supply and Demand Factors

In the oil market, supply growth remains modest, resulting in a market deficit. According to the International Energy Agency (IEA), global oil production rose by only 0.3% between December 2023 and July 2024. The IEA has also revised its 2024 supply growth estimate down from 1.8 million barrels per day (mbpd) to just 0.7 mbpd.

Factors contributing to this decline include extended voluntary OPEC+ output cuts and slowed supply growth in the U.S. and Brazil. For 2025, UBS anticipates continued subdued U.S. oil output due to lower prices, uncertainty regarding OPEC+ barrels, and a focus on capital discipline.

UBS notes, "Demand growth, while suffering from China, continues to lead supply growth with global oil inventories still in decline."

They also mentioned that monetary policy easing by major central banks will help support economic and oil demand growth next year, leading UBS to remain positive on oil prices, forecasting Brent crude to surpass $80 per barrel in the coming months.

Gold Market Insights

Similarly, demand for gold is expected to rise, with markets adjusting expectations for the Federal Reserve's rate cuts. The central bank has initiated its easing cycle, with additional cuts anticipated. Historically, gold has seen rallies of up to 10% within six months following the Fed’s first rate cut, and ETF demand for gold is increasing.

UBS highlights, "Underlying demand from Chinese investors remains solid, while jewelry consumption should see a seasonal recovery in the coming months."

Furthermore, they point to strong purchases from central banks and believe uncertainty regarding the U.S. election will boost gold prices. Strategists forecast gold to reach $2,850 per ounce by mid-2025.