Investment Managers Securities Analysts

Bermuda & Cayman


“The political risks are obviously mainly to the upside, but the fundamental economics for oil are quite bearish.” 

– Erik Norland, Senior Economist, CME Group,
June 24, 2019


Hard commodities are expected to be rangebound with concerns looming regarding a slowing global demand environment and still elevated supply levels in many cases.

Gold will remain supported by geopolitical risk and potential US interest rate cuts. Meanwhile, oil is expected to stay at current levels. US-China trade talks will largely drive the prices of soft commodities. Oil prices declined sharply in Second Quarter 2019 suggesting that macro concerns are dominating despite tight supply along with rising geopolitical risks. We believe several factors could drive oil prices higher. OPEC production has been falling and recent comments from OPEC ministers suggest a strong commitment to output cuts. In addition, several geopolitical risks such as political unrest in Venezuela and US-Iran tensions could cause oil production and exports to fall further. However, these upside price drivers are roughly balanced by increasing non-OPEC production and slowing demand in China which could put downward pressure on oil prices.

Gold’s positive price performance in 2019 despite a relatively stable US dollar and rallying equity markets shows improving investor sentiment. We believe that gold will stand to benefit this year as the economic cycle matures and the US dollar rolls over from multi year highs. Recent signs of Fed preparing to cut interest rates will also act as tailwinds for gold. Moreover, we believe US equity markets can come under pressure in the later part of the year if trade war rhetoric gains momentum which will increase demand for gold as a hedge.

The prices of industrial metals greatly depend on Chinese demand. Metal markets have remained under pressure due to a strong US dollar, tariff threats, and slowing demand in China. Overall, metal prices are expected to remain range bound as global demand threats loom. We expect copper prices to increase as falling mine supply growth will likely offset steady demand resulting in a market deficit in 2019. Moreover, nickel and aluminium may see modest upside due to shrinking inventory and a demand recovery. We expect current supply tightness in iron ore to ease through the year which may cause prices to decline while oversupply in zinc is expected to keep its price under pressure as well.

A resolution to the US-China trade war can support agriculture commodities prices in 2019. A modest increase in planted acreage, potential increased demand from China, and a third consecutive year of supply deficit may boost corn prices. However, soybean prices will stay under pressure as US soybean stockpiles are expected to double by the end of 2019. On the other hand, sugar is expected to trade range-bound as supply and demand looks balanced. Given the highly weather-dependent annual resupply cycles in agricultural commodities, the outlook for agricultural prices essentially boils down to the weather while US-China trade negotiations remain a key driver.