Quick overview

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UBS maintains a positive outlook on commodities like gold, crude oil over the medium term amid a complicated macroeconomic outlook. The bank stated in its most recent note that while short-term risks have become more balanced, it still anticipates commodities to “deliver strong diversification benefits for traditional bond/equity portfolios.”.

UBS analysts indicated that the latest top-down evaluation reveals a more balanced risk-reward scenario.“Recent momentum signals are improving, but macro signals present a mixed picture due to muted manufacturing and increased risks to inflation.

The Swiss Bank has therefore changed its top-down allocation to neutral while maintaining sector preferences. longer term, UBS is optimistic. “Over the coming years, commodity prices should be supported by a steady increase in demand from emerging markets, global efforts to achieve net-zero CO₂ emissions, climate change, and structural underinvestment across almost every sector,” the note stated.
UBS warned prices are “unlikely to move higher in a straight line from here,”  Three main pillars support UBS’s recommended active approach to commodity investing: employing a sector-specific strategy to take advantage of special opportunities, dynamically modifying exposure and boosting returns by “replacing money-market securities with a higher-yielding collateral portfolio.”.

According to UBS, “we believe investors can navigate commodity markets effectively with this active investment approach, and significantly improve the risk-adjusted returns of a broad commodity engagement versus a more passive strategy.” The recent Middle East crisis “reinforces the ongoing need for portfolio diversification” for precious metals.

The bank kept its gold rating at a moderate overweight in the face of geopolitical uncertainty. UBS clarified that in the event of a supply disruption, the risk premium incorporated into energy prices may diminish.