Commodities; What's in store for 2022?

Otis Daniels_Finck
Commodities outperformed other assets this year as a recovery from the pandemic boosted demand though gold's poor showing dented investor appetite.

Heading into 2022, commodities, which often perform well late in economic cycles, are due to remain competitive with equities as global growth extends its upward trek, analysts said. "We like both equities and commodities and we have an overweight view for both in 2022. It's hard to say which one will do better," said Koen Straetmans, senior multi-asset strategist with NN Investment Partners in the Netherlands, which had 298 billion euro (US$336 billion) under management at the end of September.

The S&P Goldman Sachs Commodity Index has surged 35% this year, trumping the US equity index S&P 500 for the first time in a decade.

Benchmark US crude oil has surged 40%, copper has added 21% while gold has fallen, sliding 5%, partly due to expectations of interest rate rises.


Gold is a top focus among general investors and its erosion after gaining 25% in 2020 has hit flows into investment vehicles.

US exchange-traded funds (ETFs) in commodities have seen net outflows of US$5.5 billion this year after inflows of US$41 billion in 2020, Morgan Stanley data showed.

JP Morgan said its forecast for significantly higher US real yields by the end of 2022 drives its bearishness on gold and silver prices over the next year. “We see gold prices steadily declining over the course of next year to a 4Q22 average of US$1 520/oz," JP Morgan said.

Spot gold was trading at US$1 797 an ounce on Monday.

According to UBS: "Precious metals continue to face cross currents - the effects of recent hawkish comments from Fed chair Jerome Powell have been offset to some degree by expectations for US inflation surprises and the equity market volatility caused by Omicron. Hence, we believe a neutral position is appropriate for now until more clarity emerges."


Credit Suisse expects oil prices to stay supported, as demand has further room to catch up, but supply competition could increase as more non-OPEC volumes return.

“Hence, spot prices may moderate somewhat as 2022 progresses, with performance mostly driven by roll yields," Credit Suisse said.

Koen Straetmans from NN Investment Partners said: "In the short term, the next couple of months, there's still some undersupply, so we're still positive on oil prices over the winter months. Going into next year, I anticipate quite a supply response ... so the market will shift in principle to a surplus."


In 2022, top commodity consumer China is due to see weaker growth, but the government is likely to balance a crisis in the property sector with moderate stimulus, analysts said.

"Copper is likely to remain volatile and vulnerable to macro moves, with low inventories and relatively light positioning, while new rules in Malaysia are tightening scrap markets. We see a downside to prices from 2H22 as supply grows faster than demand, tipping the balance into surplus," according to Morgan Stanley.

CITI remains “very bullish on back-end aluminium prices and see around 40-50% upside over the next three years in our base case”. It added: “Aluminium supply will likely be constrained by decarbonisation and thus aluminium is highly leveraged to global growth."

Next year, as logistics disruptions ease, global commodity demand should be robust as the industry catches up with restocking, but this may be offset by a more plentiful supply of many raw materials.
"There will also be a number of macro headwinds, which should limit further upside for the commodities complex," ING analysts said in a note.

– Reuters