Material Matters: A Golden Age & Other Commodities

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This story features GENESIS MINERALS LIMITED, and other companies.
For more info SHARE ANALYSIS: GMD
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

A glance through the latest expert views and predictions about commodities: tailwinds ongoing for gold; price outlooks for other commodities.

-Will geopolitical risks and supply-side constraints moderate the effect of monetary easing on commodities?
-Current Fed easing cycle expected to be benign
-Multiple factors underpin a new bull market for gold, and everybody is enthusiastic
-UBS's favourite gold stocks

By Greg Peel

Central Bank Easing Cycle

Monetary policy easing cycles have traditionally been positive periods for commodity markets, ANZ Research notes. Support of commodity markets from easing monetary policy tends to be driven by several interlinked mechanisms.

The most immediate impact is through the currency markets. The US dollar tends to weaken, boosting the appeal of commodities. Additionally, lower rates improve investor appetite for risk assets. Lower borrowing costs improve the cost of storing and holding commodities. Easing cycles also signal a central bank’s intention to support economic growth, which improves demand expectations for industrial commodities.

However, every cycle is different. This time ANZ expects geopolitical risks and supply-side constraints can moderate the effect of monetary easing. The risk of supply disruptions in Russia and the Middle East is likely to remain elevated for the foreseeable future. Trade flows in metal markets remain disrupted by the US trade war.

This easing cycle also looks relatively benign, ANZ suggests. The subsequent depreciation in the US dollar is also expected to be mild, though the impact may differ by sector.

The analysts expect gold to outperform early in the easing cycle. Oil and base metals may lag until real economic activity picks up.

The Golden Age

The price of gold has soared this year-to-date by 39%, with another surge over the past month of 5%. This suggests gold may be overbought in the short-term. However, one would be pressed to find an analyst who doesn’t believe gold still has further to run.

A range of factors has been pushing gold prices up recently, Wilsons notes, with a number of these drivers seemingly linked by a couple of overarching macro mega-themes, namely, aggressive monetary and fiscal expansion, de-dollarisation and heightened geopolitical instability.

A key causal driver of gold’s recent run appears to be central bank accumulation. After tailing off in the 1990s, central bank gold holdings have been rising strongly for some time now. Emerging central banks have been strong buyers since the early 2000s. The pace of central bank gold accumulation has re-accelerated since the Russia/Ukraine war as many central banks seek to diversify away from the US dollar.

De-dollarisation represents the desire of not just central banks but many institutions and private investors to diversify holdings beyond US dollars. The rationale for de-dollarisation is multi-faceted, Wilsons notes, but revolves around the historical “reserve currency” role of the US dollar in the global financial system.

When this “monopoly role” of the US dollar is juxtaposed against burgeoning US budget deficits and general US policy uncertainty, Wilsons suggests the desire for de-dollarisation is not surprising. De-dollarisation appears to have been a key driver of the rally in the gold price in recent years, and in particular the gain in the current year.

Gold is also seen as a hedge against geopolitical tensions which have been on the rise, particularly since 2022. Increasing political polarisation and rising signs of authoritarian leadership across both the developing and developed world is arguably supporting the case for gold as a tail risk hedge in Wilsons’ view.

Finally, central bank rate cuts since 2023 are once again lowering the opportunity cost of holding gold. Increased expectations for a fresh run of Fed rate cuts have likely boosted gold’s performance over the last month or so.

These often-related factors have created a powerful tailwind for the gold price in recent years, and while gold may be overbought in the short-term, Wilsons sees these drivers as likely to remain in place as a strong support for gold over the medium-term.

With gold having reached Deutsche Bank’s 2026 average forecast of US$3,700/oz, the analysts believe further upside is more likely than a correction down to financial fair value. This view is supported by a context in which Deutsche Bank analysts see the positives outweighing the negatives.

These include a resumed Fed easing cycle, with Deutsche Bank now seeing downside risk to its prior base case of holding rates steady in 2026 after three cuts in 2025, an ongoing challenge to Fed independence, and changes to the composition of the FOMC creating uncertainty over how this will affect the Fed’s reaction function next year.

Add to that Deutsche’s preference for US dollar downside as it loses its status as a G10 high-yielder, as well as reflecting foreigners’ newfound inclination to invest in US assets on a currency-hedged basis. Historically the broad US dollar is the strongest determinant of gold performance.

Official (central bank) demand for gold is continuing at a pace around twice that of the 2011-2021 average, with much of this on account of China, and recycled gold supply is running below (4%) of what the analysts would expect this year. This dampens a structural restraint on gold upside.

Citi expects the gold bull market to continue near-term and its 0-3 month price target is US$3,800/oz. Citi expects both the cyclical drivers (continued weakening in the US labour market, tariff-driven US and global growth concerns) and the structural drivers (concerns on US debt, US dollar status and Fed independence, elevated geopolitical risks) to remain bullish for gold in the near term.

Indeed, says Citi, just about everything is going right for the gold bull market at the minute. To be sure, relatively structural factors such as elevated geopolitical risks, Fed independence concerns, and large US fiscal deficits are likely to underpin a desire for investors and central banks to run a high allocation or increase their gold allocation for years to come.

Having said this, Citi does expect some substantial cyclical volatility around this longer-term bullish trend once lower US real rates are priced in, and owing to a base-case expectation of a pick-up in US growth during June to December quarters of 2026, on top of reduced fears about US recession.

Gold Equities

As the US Fed cuts rates, UBS increases its 2026/27/28 bullion pricing forecasts by an average of 9%/12%/12% to US$3,825/3,650/3,350/oz. Note diminishing prices reflect the time value of money.

UBS’ peak gold price moves up by US$300/oz to US$3,900/oz, which the analysts see in the September quarter of 2026, equating to A$6,000/oz. Lifting the forecast sees an extended free cash flow harvest phase across the gold sector, earnings per share upgrades of 18%/29% in FY26/27, and net present value-based price targets 6-25% higher.

At current equity levels, UBS sees more opportunity in mid-cap growth names of Genesis Minerals ((GMD)), Perseus Mining ((PRU)), and Vault Minerals ((VAU)). Due to recent share price momentum, UBS downgrades SSR Mining ((SSR)) to a Neutral and Regis Resources ((RRL)) to Sell.

Despite some valuations starting to become more stretched, mark-to-market consensus revisions remain positive and while some price consolidation is anticipated near-term, UBS analysts do not see a clear macro catalyst/scenario consistent with a sustained downcycle.

In the August reporting season, FY26 outlooks largely disappointed across the board on a combination of modestly weaker production, higher costs and higher growth capex, UBS notes.

That said, strength in the gold price outlook has allowed equity markets to quickly look past these guidance downgrades.

Other Commodities

Trade war and related macro risks have not materialised as UBS had previously feared. Since UBS last reviewed sector commodity and equity calls, the outlook has incrementally improved. The broker expects an improving macro backdrop (combined with stable fundamentals and a pick-up in M&A activity) will continue to support equity rotation into the miners.

In China, UBS expects commodity demand to remain resilient despite any major stimulus with “anti-involution” measures (to combat excess production and over-capacity) to provide incremental support to certain commodities.

In developed markets, UBS sees potential for restocking to be supportive when traditional end-markets pick up, remaining productive on a twelve month view on those commodities with supportive supply-side dynamics and secular demand drivers, including copper and aluminium.

While remaining positive on gold, with further upgrades to the price outlook, UBS acknowledges the risk-reward is not as attractive as at the start of 2025.

Limited downside is seen for coal and nickel with prices already well into the cost curve, but equally supply/demand fundamentals do not point to tight markets near-term. The broker maintains a more supportive outlook for lithium but highlights large dispersion of price outcomes dependent on the direction of China’s supply scrutiny.

While the medium-term supply outlook for iron ore remains a potential overhang, near term UBS increases forecasts for prices to hold around US$100/t over next 6-12 months.

From an equities perspective, Sandfire Resources ((SFR)) is preferred for copper, the sector view on lithium is Neutral, and Paladin Energy ((PDN)) is preferred for uranium.

For the diversifieds, the view remains Neutral with a marginal preference for BHP Group ((BHP)) over Rio Tinto ((RIO)), while higher price targets for Fortescue ((FMG)) and Mineral Resources ((MIN)) result in an upgrade/downgrade (respectively) to Neutral on valuation grounds.

There have been good reasons for copper’s strength in recent months, but the signs of weakness Morgan Stanley was expecting are starting to come through.

Morgan Stanley expects some modest price downside into year end, but if the current macro backdrop stays supportive, pullbacks are likely to offer buying opportunities with the 2026 balance still looking tight.

This broker will continue to monitor China’s demand signals in particular, though high level economic data suggest a continued slowdown.

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