Investors must diversify their portfolios to navigate the commodities markets in an environment of geopolitical uncertainty and trade tensions.
Investment demand, fueled in part by possible trade disputes between China and the US, is expected to drive up the price of metals, among other commodities.
Power demand is increasing as a result of the global trend away from fossil-fuels.
In the future, there will be a sustained demand for metals and other raw materials that are essential to power production.
COINPAPER interviewed Ole Hansen from Saxo Bank, the head of commodity strategy, to gain insight into commodity market trends, risk management, and strategies.
Hansen suggests that novice investors get a broad view of the market by investing in ETFs tracking major commodity indexes such as Bloomberg Commodity Index.
It is a good way to diversify your portfolio and reduce volatility, compared with investing solely in commodities.
Hansen prefers construction metals such as copper and aluminium to decarbonization metals.
Data centers and concerns about climate change are driving the demand for commodities such as natural gas and uranium.
Excerpts edited:
Invezz : Which are the main trends that you observe in the commodities markets and what do you expect to happen over the coming year?
We are currently examining some short-term as well as long-term patterns.
The short-term issue is the Washington developments.
Oil prices are unchanged from the beginning of the year, after an increase by $10 per barrel.
The trend also shows a world that is not disorganized, but one in turmoil for many reasons.
It’s a way to strengthen the gold.
Prices for commodities will also continue to be supported by some of the major trends that I believe are likely in coming years.
In the end, commodities aren’t just about demand. They also involve supply.
In some cases, the supply could be challenged over the next few years.
We have some important things, like the de-globalisation that is happening right now.
We are decoupling after decades of globalization.
The world is divided into two poles – China and America.
Then there are the big emerging economies, like India and Europe.
Defense spending is increasing, and this increases the cost of commodities.
Decarbonization is a process that adds support to several commodities.
De-dollarisation has gained momentum since the Russian invasion of Ukraine in 2022.
Central banks are increasingly buying gold to decrease their dependence on the US dollar.
The demand from central banks for gold is expected to remain strong.
AI (artificial Intelligence) is the latest craze.
What the future holds for commodities as a result of the rollout and demand for data centers in coming years.
We would describe the period between 2000 and 2008 as a super cycle, since China began to enter the global stage by purchasing large quantities of raw material.
We’re not looking for a fast pace, but there is still underlying demand.
Consideration should be given to the investment perspective. Investors are looking for the latest trends.
They’re trying to get in on the action of the tech boom, and they all want to benefit from the recent rally. This has also created some markets which are overvalued, where some worries exist.
There are financial concerns and the world is indebted.
Tariffs could also have an impact on the price of goods, causing inflationary fears to return.
This leads, I’d say, to inflation being more sticky than it was before.
In an inflationary environment, you should also consider investing in tangible assets.
The physical demand for key metals, and other commodities will continue to be strong over the next few years.
Due to the ongoing uncertainty in the market, it is also likely that investment demand will support prices.
These commodities may be a good alternative for investors who are looking to diversify away from more traditional investments like bonds and stocks.
Investment Strategies
Invezz : What would you advise someone who is looking to make their first investment in commodities?
Investors must first understand commodities’ volatility and risks.
Investors may wish to broaden their exposure to commodities if the opinions I’ve shared are what drives the market.
Over the last decade, investment options have expanded dramatically.
There are several ETFs available that follow major commodities indices.
The Bloomberg Commodity Index is the index I follow most closely. It is my favorite because of its roughly 1/3 exposure to metals, energy, agriculture and agricultural commodities.
This is a better way to diversify than some others, which are more focused on trading and have a greater percentage of energy exposure.
But that’s not where I expect to see the greatest upside. Then I will look at ETFs.
You can spread yourself over the entire spectrum, reducing the volatility you observe in daily price fluctuations.
It is not enough to simply be exposed to cocoa or coffee.
ICD What commodities have the highest growth potential and why?
We still believe that the price of gold and silver will continue to rise.
When you compare industrial metals to construction metals, there is a clear difference.
The demand for steel will increase if the government spends more on defense, but in general, copper and aluminium are preferred.
Crude oil will largely be rangebound, as I mentioned earlier.
The power sector is where we expect to see a big increase in energy demand over the next few years.
As the temperature rises, so will power consumption.
The demand for raw materials to produce electricity, like uranium or gas, will increase.
We’re seeing coal consumption records, especially in Asia, despite the push towards cleaner energy.
In the future, we’ll need more power to meet our growing demand.
It’s hard to make any predictions on the agriculture side because everything is weather dependent.
We’ve learned this year, however, that foods produced in small geographic areas are highly vulnerable to weather changes.
In West Africa, we saw it in the cocoa price. Right now, coffee prices are setting record highs due to the adverse production conditions in Brazil.
In the last couple of years, key crops such as corn, soybeans and wheat have had very successful production seasons, which has led to increasing inventories and low prices.
Prices for soybeans and corn have been increasing recently. This trend may continue in the coming six months if production problems are experienced by the Northern Hemisphere.
Do you think that gold will reach $3,000 in the near future? Are you sure it’s possible?
In December, we lowered our gold price target from $3,000 to $2900 an ounce simply due to the slower pace at which interest rates are expected be cut this year.
Still, I believe that $3,000 will be within reach.
If we reach that level of silver, we may see it do better. It could even go up to the $30s, or somewhere between $38 and $40.
The multiple factors supporting these products continue to be a strong supporter.
Tariffs on US goods
ICD What do you estimate the impact of US tariffs against Canada’s imports of energy?
If it comes back and has been removed from the table for the moment, it will be postponed, just as the Mexican tariffs have also been postponed.
If they were introduced again it could create bottlenecks in certain areas, particularly the north of the US where refineries are heavily dependent on the oil that comes down from Canada.
It also shows that the US does not have oil independence, simply because they don’t produce the kind of oil that refineries require to make all the products in demand.
Other products include chemicals, plastics, fuels of high quality, etc.
This means the Canadian crude oil is of a higher quality.
This is also why US imports about 4.5 million barrels crude oil each year from Canada and Mexico.
They also export about 4 million barrels.
You could say it’s like zero-sum but the quality differences are what makes these countries dependent on imported goods from Canada and Mexico.
If they were introduced, the price of Canadian crude oil would increase by 10 percent.
It is unclear who will bear the cost, but it is likely that the price increase would fall more evenly on the sellers, producers in Canada and refineries in US.
It will ultimately translate to higher regional prices for certain refined products.
OPEC’s Strategy
ICD What is your opinion about the strategy that the Organization of the Petroleum Exporting Countries and its allies will adopt in April, when it’s scheduled for them to increase oil production?
This is going to mean balancing on the edge of a knife.
We have, at least for the first part of January seen a much higher consumption level than expected.
It is possible that the projected surplus will shrink but not disappear completely, and reduces earlier expectations of an excess supply.
The sanctions against Russia have affected buyers in Asia. New possible sanctions could impact Iran as well.
Iran’s oil production has increased by more than a million barrels a day despite existing restrictions during Biden’s presidency.
If this trend starts to reverse, or at least partially reverse, it will allow for a gradual increase by other OPEC-producers.
OPEC has already begun to taper the cuts in production that began last April. In terms of barrels it will be relatively low amounts over time.
The impact will not be as aggressive, I think.
This is why, I believe we are back at square one in regards to price movement this year.
A trade war is a risk.
Global trade wars will harm the growth rate and demand for energy. That is why it’s important.
OPEC has no plans to increase production before April. This means that they need to reevaluate their situation in March.
By then, we should have more clarity about the future of the tariff battle, such as whether Europe is going to get involved, and possible countermeasures.
This will allow you to predict the global impact of demand.
We predicted that Brent crude oil prices would be between $65 to $85 per barrel at the start of this year.
We will continue to aim for $75 as that is the current price, which falls in our middle range.
While the US may try to increase oil production, the oil producing companies will focus on two key factors.
There are several reasons for the limitations of US production growth.
Included are the anticipated forward price, investment costs for new production and expectations of demand for future years.
If prices fall into the 60s, certain projects could become unprofitable, which would lead to a decrease in US production.
It’s therefore likely that there is a ceiling on the market in the middle 60s.
Only a disruption in supply could cause prices to rise back into the range of 85.
OPEC – Do you still think it is relevant?
They have done well in recent years, because without their management of oil output we might have seen the crude oil price fall sharply at some points.
The price stability has been maintained with great success.
Prices are still lower than expected, despite the stabilization. OPEC policies are partly to blame for this.
They have increased production by lowering production.
This year, the primary reason that price forecasts are negative is because non-OPEC+’s production increase will surpass total demand.
OPEC has contributed to this, as they’ve kept the prices higher than they would otherwise have. This has led to an increase in production.
Over time it won’t matter if they are relevant or not, because the global demand for oil will begin to shift.
This rollover will be crucial to OPEC’s ability to control prices and production.
In the next few years, this quest will only become more difficult.
For now I will say that they are very successful. But over time, it may be harder to keep this level of stability.
AI and commodity trading
How would you describe the impact of technological advances, such as blockchain and AI on commodity trading?
Data is the first issue that arises when it comes to AI. The vast amount of information required to create all these wonderful solutions.
It is important to focus attention on power-generating firms and companies that build power-generating plants.
This is why stocks of companies involved in the buildup have seen an extremely, very powerful rally.
Even though the DeepSeek News corrected some of these issues, I believe that this trend will continue.
This trend is likely to continue.
Metals, in particular, will be needed to expand capacity.
Ole Hansen, Saxo Bank: A diversification into commodities can mitigate risks in a world of global uncertainty
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