(Kitco News) – U.S.-Iran negotiations remain the most important driver of commodity markets in the near term, and an allocation to commodities can help investors hedge against inflation and energy supply shocks over the medium term, according to Giovanni Staunovo, commodity analyst at UBS.
In a new update published Monday, Staunovo wrote that commodity market volatility is likely to remain elevated in the near term, but these fluctuations have also added up to significant gains across the complex.
“The price of Brent crude oil hit a four-year high of USD 126/bbl on 30 April; it was trading around USD 93/bbl at the time of writing,” he noted. “Gold prices are currently around 16% below their all-time closing high in January, with higher rate expectations since the escalation of tensions weighing on sentiment.”
“Broad commodities have gained more than 20% year to date, based on the UBS CMCI Composite total returns index in US dollars,” he noted.
Staunovo said that as the current geopolitical risk premium fades, the underlying fundamentals for oil, gold and base metals look supportive.
“Oil product inventories are running low in various economies and could necessitate even higher prices to ration demand before stocks are refilled,” he said. “Over the medium term, we expect gold to move higher amid elevated global debt burdens, persistent fiscal deficits in the US, and continued reserve diversification trends. We project further supply shortages for copper and aluminum, which should support prices over the medium term, while structural drivers (e.g., electrification) underpin long-term demand.”
Staunovo said that UBS continues to favor commodities in 2026, with a focus on active management.
“Commodities can face periods of volatility, but they can also play a valuable role in portfolios, as they have historically shown low correlation with equities and bonds,” he said.
Just last week, UBS cut its year-end 2026 gold price forecast from $5,900 to $5,500 per ounce, citing risks of persistent headwinds from elevated Treasury yields and sustained U.S. dollar strength.
UBS analysts Dominic Schnider and Wayne Gordon said that investors are shying away from the yellow metal as yields stay high.
“Markets are rediscovering the concept of opportunity cost, with gold’s non-yielding characteristics once again becoming a more important consideration as real rates remain elevated,” they wrote in a note.
Schnider and Gordon noted that both ETF and futures demand has softened significantly, and the recent stabilization in flows is not yet sufficient to restore the strong upward momentum gold enjoyed earlier in 2026.
While UBS does not believe the structural gold bull market is over, the analysts said investors may require greater patience in the face of these challenges. Still, the analysts project gold will finish the year $1,000 higher than its current price.
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Looking ahead to 2027, Schnider and Gordon said that a more neutral monetary policy backdrop could weaken support for the dollar and improve investor appetite for gold once again.
On April 13, UBS commodity analyst Giovanni Staunovo said that commodities such as gold and oil will likely continue to deliver outsized price gains long after the Iran war is over, and investors sitting on substantial gold positions should consider broadening their commodity exposure.
In a research note, Staunovo analyzed the impact of the ongoing Middle East conflict on the commodity sector.
“Continued tensions in Iran and risks in the Strait of Hormuz have added upside pressure to both prices and volatility in commodities, most notably oil,” he wrote. “We continue to see upside for commodities, driven by fundamentals and supply-demand imbalances alongside further geopolitical risks. Maintaining an allocation to commodities, with a focus on active management, can help investors hedge against inflation and energy supply shocks.”
Staunovo noted that Brent crude was trading around $72 per barrel before the strikes on Iran, but was $102 per barrel at the time.
“Gold prices are currently just under 13% below their all-time closing high in January, with higher rate expectations since the escalation of tensions weighing on sentiment,” he said. “Broad commodities have gained around 17% year to date, based on the UBS CMCI Composite total returns index in US dollars.”
Staunovo said that even though the geopolitical risk premium is expected to fade, the fundamentals for commodities look supportive.
“Oil product inventories are running low in various economies and could necessitate even higher prices to ration demand before stocks are refilled,” he said. “Over the medium term, we would still expect gold to rally substantially if geopolitical uncertainty remains high while interest rate expectations come down.”
He added that UBS is projecting further supply shortages for copper and aluminum, supporting prices over the medium term even as structural drivers such as electrification underpin long-term demand.
Staunovo noted that commodity returns “can be strong when supply-demand imbalances or macro risks, such as inflation or geopolitical events, are elevated.”
“For investors with an affinity for gold, we believe a modest allocation can enhance diversification and buffer against systemic risks,” he said. “For investors with substantial allocations and significant unrealized profits in gold, broadening commodity exposure to include copper, aluminum, and agricultural assets can help diversify sources of future return, in our view.”
On March 16, commodity analysts at UBS predicted that the updated calculus of risk, interest rate policy, inflation, and strong underlying demand will still propel the yellow metal as high as $6,200 per ounce by the end of 2026.
The analysts noted that gold has been unable to break out above $5,200 per ounce since the start of the Iran conflict, with its supposed safe-haven bid failing to materialize. “This creates a contrast to its 65% rise last year, when heightened geopolitical risks served as a tailwind amid fundamental drivers such as lower real interest rates and debt concerns,” they noted. “Its latest performance mirrors historical behavior during such events, where investors seek liquidity and consider alternatives like energy assets.”
“For instance, gold jumped 15% after the start of the Russia-Ukraine conflict in 2022, but then declined by 15-18% as the Federal Reserve raised rates,” they wrote. “The same happened during the Gulf War and Iraq War—prices rose 17% and 19%, respectively, at the start but decreased as tensions eased.”
But the yellow metal’s recent sideways churn has not shaken the Swiss banking giant’s belief that gold will gain another 20% or more in 2026.
“[W]e maintain the view that gold prices should rise toward USD 5,900-6,200/oz this year,” they said. “Gold is more of a hedge against the wider impact of conflicts, rather than direct wartime threats. Gold primarily insulates against monetary risks like currency devaluation, rising deficits, and economic slowdowns, which can result from geopolitical conflicts.”
“In the short term, higher energy prices and inflation worries have led to a stronger US dollar and concerns over potential rate hikes—both are negative for gold prices,” the analysts conceded. “But we expect central banks to be watchful of inflation risks without making knee-jerk policy rate hikes.”
In addition, the longer the U.S.-Iran conflict drags on, the greater the risk of negative economic impacts, which will likely support hedging demand for gold.
“Over the longer term, gold stands out as a hedge against inflation,” they said. “According to the Global Investment Returns Yearbook, the real returns of gold and commodities since 1900 have positive correlations to inflation.”
UBS also pointed out that underlying demand for gold remains strong. “While ETF investors trimmed their gold holdings slightly earlier this month, their positions have shown greater stability of late, and hedge funds have modestly boosted their net positioning in gold,” the analysts wrote. “We believe total gold demand is likely to stay strong, supported by continued central bank purchases, rising investment activity, as well as the structural growth of demand for gold jewelry amid higher incomes in Asia.”
Structural trends will also continue to support gold’s appeal. “We expect structural trends such as elevated government debt as well as central banks' and global investors’ efforts to diversify away from the greenback to support gold’s long-term outlook,” they added. “So, given the macroeconomic and political uncertainties beyond the risks arising from the US-Iran conflict, we continue to hold a positive view on gold and believe that the yellow metal remains an effective portfolio diversifier. Investors with an affinity for gold could consider an up to mid-single-digit allocation in a diversified portfolio.”
