Investing.com - Macroeconomic challenges facing commodities in the first three quarters of 2024 have reversed and become tailwinds entering the new year, according to analysts at Wells Fargo (NYSE:WFC).
Elevated interest rates and broader economic uncertainties weighed on commodity prices over the January-to-September period last year, although that trend largely turned around in the fourth quarter, the analysts led by Mason Mendez said in a note to clients published on Monday.
Commodities in general delivered a modest performance in 2024, they said, with the Bloomberg Commodity Total (EPA:TTEF) Return Index clocking a 4.5% year-to-date increase as of Dec. 26.
"While supply conditions remained supportive of higher prices, commodity demand was held back by global economic headwinds," the analysts wrote.
That tepid demand is seen improving in 2025, becoming a possible spark that ignites an uptick in commodity prices, they added. However, they flagged that the supply side "should not be forgotten."
"After two years of lackluster commodity prices, many commodity producers have slowed production growth," the analysts said. "This could become a particularly acute point in 2025 in the event that demand recovers at a stronger pace than most expect."
They noted that new commodity output often lags demand "by months, and sometimes years."
Among individual sectors, the analysts said they are most keen on precious metals, such as gold, and energy, with both expected to gain at least 10% in 2025. This would exceed the return the analysts expect from the mid-point of their 250-270 target range range for the broader Bloomberg Commodity Total Return Index.
Gold, in particular, experienced a turbulent end to 2024 due in part to caution around more Federal Reserve interest rate cuts, which contributed to an uptick in nominal and real bond yields that dented the appeal of non-yielding bullion.
Still, the yellow metal jumped by around 27% annually to close out the year at $2,625 per troy ounce, and the prospect of more Fed rate reductions -- albeit at a possibly slower pace -- could continue to boost its appeal, the Wells Fargo analysts said.
They set a target range for gold prices at $2,700-$2,800 per troy ounce this year.
Energy, meanwhile, is tipped to benefit from greater demand as global economic conditions improve, the analysts forecast. West Texas Intermediate crude oil is tipped to be between $85-$95 a barrel, while Brent crude is seen at $90-$100 per barrel. Oil prices dropped by around 3% in 2024, weighed down partly by a sluggish post-pandemic recovery in global demand.