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Investor-led rally running out of road

Following a spectacular rebound from pandemic-induced lows, we continue to expect that most commodity prices will be falling again by end-2021. Although growth in demand should be strong as the global economic recovery gathers pace, the recent price gains will incentivise supply. This is particularly the case for agricultural commodities, where output can respond quickly to prices. Unusually, supply in the oil market will also be able to rise relatively quickly given that a large amount of capacity is currently offline. Aside from rising supply, commodity prices face a number of other headwinds over the next year including the prospect of a stronger US dollar and higher US Treasury yields. Against this backdrop, we expect that the price of gold will fall. Meanwhile, our forecasts of slowing economic growth in China, as policy stimulus is withdrawn, and softer growth in demand for Asian goods exports point to downward pressure on industrial metals prices.

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