Tougher few months in prospect

Commodity prices have had a good few months, which is consistent with our relatively positive views on the medium-term outlook. The easing of fears about China’s economy has helped industrials, while commodities in general have benefited from hopes of an extended period of very low global interest rates. Gold’s status as a safe haven has been polished by the Brexit vote, while silver has shone even brighter. Nonetheless, the coming months may be much tougher. In particular, commodities are vulnerable to a resumption of Fed tightening and renewed strength in the US dollar. The next leg up in oil prices may have to wait, although we continue to expect Brent and WTI to recover further (to $60pb) in 2017. In the meantime, gold may benefit again from increased global uncertainty ahead of (and perhaps after) the US Presidential elections in November.