2024 was relatively quieter for resource markets compared to the volatility of previous years. Concerns over Chinese growth weighed on bulk commodities like iron ore and coal, while Opec’s extended production cuts kept oil prices relatively stable, hovering around US$70.
Base metals experienced slight gains, driven by strong demand from the renewable energy sector, particularly solar and wind, along with tighter raw material markets. The standout performer was gold, which surged 30%, driven by geopolitical tensions and robust central bank buying.
Gold and oil
In 2025, Trump’s tariff policies may influence commodity markets, with China likely boosting growth in response. The US and China will strive to grow, while Europe faces challenges. Geopolitical tensions are expected to support gold, which is predicted to remain strong due to instability.
Our fundamental view supports gold staying above US$2,500 an ounce, with a base case range of US$2,500 to US$2,800. However, we see the risks as heavily skewed to the upside, making a breakout higher more likely than a decline.
A bearish scenario for gold would involve strong US economic growth, improved US-China relations, a stronger dollar, and low inflation. However, that scenario doesn’t seem particularly likely at this point.
We see oil remaining range-bound for now, with a potential risk of weakness in the first half of the year. However, as the year progresses, we expect fundamentals to tighten, possibly more than most anticipate. Co-ordinated Opec actions have effectively removed the downside tail risk, providing strong support to the market. That said, the key wildcard is how tariffs might impact oil demand, which remains difficult to predict at this stage.
Investment opportunities
The current market uncertainty has led to a sense of apathy, but this presents investment opportunities. Despite high spot prices for some commodities, equities are often priced lower, creating a potential upside. In metals and mining, valuations don’t fully reflect the upside risks, potentially leading to increased M&A activity, similar to trends observed from 2001 to 2007. A similar dynamic played out between 2001 and 2007, and it could potentially return.
In other areas, we see opportunities in the midstream market in the US, driven by rising US gas volumes. Although we expect oil to remain range-bound for now, with a potential risk of weakness in H125, as the year progresses, we expect fundamentals to tighten, possibly more than anticipated.
That said, the wildcard is how tariffs might impact oil demand, which remains difficult to predict at this stage. In agriculture, while grain markets are well supplied, we see potential in seeds, nitrogen, and protein markets like pork and salmon, which appear more promising as the year progresses.
Long-term investors should consider holding natural resource equities, as inflation is expected to average higher in the next decade compared to the previous 15 years, making them an effective hedge. Current valuations are not stretched; in fact, in many cases, they appear quite low. At the same time, many resource companies are defensively positioned with strong balance sheets.
We are currently seeing the start of a turning point in the capex cycle after years of underinvestment. For example, power grid investment in the US to support AI is picking up, and in Asia (excluding China), we see promising growth prospects that should increasingly offset any slowdown in China’s growth and infrastructure spending.
It’s also worth noting that inventory levels for many commodities remain very low, meaning any unexpected uptick in demand could have a rapid and significant impact on prices.
Conclusion
Ahead of Trump’s administration, the market has been dominated by discussions around tariffs and the uncertainty about which tariffs will be implemented and where. Once those details emerge, we expect China to respond competitively by driving economic growth, as the authorities will aim to counterbalance the US. As a result, we could see both economies striving to grow strongly.
Looking into 2025, the sector continues to represent an attractive investment opportunity, as structural market dynamics support the value opportunity, including: growing demand for critical minerals by electrification technologies, pre-emptive underinvestment in traditional energy, and inflation hedging characteristics of Natural Resources and Energy (NRE) sectors.
