Commodities: Outlook continues to improve, stick with gold exposure

The improving global growth picture coincides with our leading indicators forecasting higher commodity prices.

Both our supply-demand model for commodities and our contango index point to higher prices for at least the next 6 months. These are consistent with the latest rebound in methanol prices, which has tended to mark a broader upturn in commodity prices.

We first highlighted in June that fundamentals put a floor of $60 in Brent oil prices, and that outlook remains intact. On the demand side, our LEIs for China and India continue to edge higher and point to a stable demand picture. On the supply side, OPEC production has increased by less than announcements have implied while US and global rig counts have edged lower. With inventories low, there is scope for production and price to rise from here.

Outside of energy, we still like exposure to gold as a real asset even though the price is breaking to new highs. We’ll be monitoring our tactical models to see if this rally gets overextended, but the structural bull case remains intact.