Commodities are regaining investor attention as a hedge against inflation and supply risks, according to a UBS strategy note released Thursday. The bank highlighted energy, industrial metals and agriculture as key areas with potential upside, citing ongoing Middle East tensions and shifting weather patterns.
European natural gas prices, as measured by Dutch TTF futures, traded around 65 euros per megawatt-hour on August 26, just below a three-year high reached earlier in the week. Brent crude futures remained near $87 a barrel, supported by concerns over supply disruptions in the region. UBS noted that while shifting conditions in the Middle East continue to impact oil and refined product markets, the case for broad commodity exposure extends beyond energy.
Agricultural markets showed significant strength, with wheat surging 6.6% and corn rising 2.7% to three-year highs on the same day. The gains were attributed to supply concerns amid adverse weather conditions. UBS also pointed to a roughly 80% probability that the current El Niño weather pattern develops into a very strong or "super" episode by year-end, with a 97% chance of persistence into 2025, further tightening agricultural supply.
Industrial metals, particularly copper, are viewed as beneficiaries of long-term trends such as AI infrastructure build-out and electrification. Gold is expected to remain supported by central bank demand and reserve diversification, despite a more challenging near-term outlook. The bank emphasized that commodities have exhibited a 0.44 correlation with global equities since 1999, reinforcing their role in diversified portfolios.
UBS recommended a diversified, regularly rebalanced approach to commodity exposure, favoring active management to navigate the evolving macro and geopolitical landscape.
