The prices of many commodities have come off the boil recently on fading optimism about demand, rising geopolitical risk and the prospect of further US monetary tightening and dollar appreciation. Of course, there were some exceptions: the prices of both oil and gold were supported by heightened political tensions. Looking forward, the macroeconomic backdrop for commodities contains some positives, including stronger global growth, but also some negatives, notably slower Chinese growth and Fed tightening. Indeed, perhaps unusually, we are not expecting commodity prices to move as a pack in 2017. Instead, we forecast that the prices of individual commodities will diverge, based on their own demand and supply fundamentals.
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