Considering commodities were some of the best-performing assets in 2024, you may want to broaden your commodities portfolio over the next year. But where should you start?
Supply and demand may be your first lesson in Econ 101, but that doesn’t mean it’s always so simple in the real world.
“Looking ahead, the wide range of potential policy shifts in the US and around the world, coupled with ongoing geopolitical uncertainty, suggest commodities will continue to be an important area of focus for markets and policy makers in 2025,” explained Kristian Kerr, Head of Macro Strategy at LPL Financial.
Geopolitics has a lot to do with the supply and demand curve for all commodities globally next year. Economists project that the US economy will grow as the Trump administration raises tariffs on China, while the Chinese economy will slow due to higher export costs. JPMorgan analysts cut their outlook for China’s GDP to 3.9% due mainly to US tariffs.
And while the US economy is expected to grow faster than other advanced economies, geopolitical conflict in the Middle East will likely pose risks to investors, according to analysts.
“China will still have an important role in the commodities landscape, particularly as the scale of their potential fiscal stimulus becomes clearer,” wrote Kerr. “However, another important factor will be the growing interest in the global expansion of data centers, as this could create another lasting and important source of demand for essential commodities.”
Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.
The forecast: Demand for energy is likely to keep slowing in China if its economy continues to lag, while the supply of oil keeps rising. “Given weak oil supply-demand fundamentals, we look to a large 1.3 mbd surplus in 2025 and an average Brent of $73, although we expect prices to close the year firmly below $70, with WTI at $64,” wrote JPMorgan analysts in their 2025 outlook.
Metallic madness
But if there’s one major beneficiary of global chaos and economic uncertainty, it’s gold. And analysts are more bullish on the shiny metal than ever, along with its younger siblings silver, copper, lithium, and nickel.
Why? Gold is a classic geopolitical hedge, and the buildout of AI technology raises demand for other precious metals.
“In commodities, we expect gold to break new highs and anticipate higher prices for ‘transition’ metals like copper, lithium, and nickel,” wrote UBS analysts. “We maintain our target of USD 2,900/oz by end-2025 and continue to recommend around a 5% allocation to gold as a diversifier,” they added.
Wells Fargo concurred, with analysts setting its year-end price target for gold at between $2,800 and $2,900.
The big picture: “For investors, commodity exposure should remain as a small portion of a portfolio with diversification across the commodity complex being a necessary part of the strategy,” Kerr wrote.—LB