The political landscape could look very different by December of this year. Two of history's most unpopular presidential candidates may run against each other in the United States. One of them, Donald Trump, recently won the Iowa primaries by almost three times the amount of the next highest landslide margin. Outside the US, there are elections of global significance in India, Indonesia, Pakistan, Russia, South Korea, Mexico, Taiwan, South Africa, and the UK.

The economic risk around these elections should certainly be on investors’ radar, given the outcome of the 15th BRICS² summit last August. Six additional countries were accepted into the BRICS organization at the meeting, including Egypt, Ethiopia, Saudi Arabia, Iran, Argentina, and the United Arab Emirates. Several of which are in fact unlikely allies. Egypt and Ethiopia have been in an ongoing dispute that started in 2010 over the Grand Ethiopian Renaissance Dam³, which Egypt believes violates a 1959 treaty on water rights for the Nile River. Iran and Saudi Arabia have been in regional conflicts since 1979 that have occasionally escalated to proxy military confrontations. More than 40 additional countries applied for BRICS membership by the end of the meeting.

The Council of Foreign Relations⁴ states, “The slew of applications to join BRICS is clearly a symptom of a deeper malaise. The West's proclivity to deploy unilateral financial sanctions, abuse international payment mechanisms, renege on climate finance commitments, and accord scant respect to food security and health imperatives of the Global South during the pandemic are only some of the elements responsible for the growing disenchantment with the prevailing international system.”

The US has used the international payment system (SWIFT)⁵ as an arm to enforce US foreign policy under Presidents Bush, Obama, Trump, and Biden. It is no wonder developing countries wish to diversify their risk of US sanctions by diversifying away from the US dollar at the margin. Reducing a country's foreign exchange holdings of US dollars and US treasuries at the margin is not the 'end of the dollar.' However, it does have implications for the price of the asset they are replacing the dollar with.

Electorate changes and higher sanctions risks in 2024 have us looking at some of the commodities that could see an upside due to changing supply chain economics.

What we’re watching

The following are the commodities we have our eyes on in 2024, and why.

Gold

Foreign central banks continue to be significant buyers of gold to diversify foreign exchange holdings. ETF investors selling gold in massive numbers (21 million ounces from April 2022 to October 2023) stopped the large selling in early October⁶, kicking off a gold price rally of 13% into year-end⁷.

Oil

Oil demand typically falls as the calendar flips from Q4 into Q1 by 1.5–2.5 million barrels per day for seasonal reasons. However, the energy transition is still in its infancy and has not deterred the long-term trend over the last 50 years, which averaged 1.5 million barrels per day of yearly demand growth.

Oil supply has increased slightly in the US and Guyana but has been cut back by OPEC⁸ countries. Oil prices have not had strong upside price trends, which has pushed momentum investors like commodity trading advisors out of the commodity. This can be seen in CFTC⁹ data, where net positioning is at only 170,000 contracts¹⁰. That's a level only seen for two brief periods in 2023, a brief period in early 2016 and pre-2013. That isn't consistent with the current level of geopolitical risk.

Copper

There is a wide range of estimates on electric vehicle (EV) sales levels over the next ten years, and interest rates and economic conditions can alter those significantly. The level of EV sales will affect copper demand from automobile sources. However, it is one of many demand sources that overlooks the need for greatly expanded grid capacity for an electrified future. Copper supply projections also have a wide range of estimates, although supply estimates have been decreasing over the last two months. Lower supply is generally bullish for the price, all else being equal, and Citigroup believes copper could reach $15,000 per ton in 2025 under the right conditions¹¹. The current price is $8,354.50 per ton¹².

Platinum and palladium

EV sales are not meeting estimates as higher interest rates, higher credit card debt, and some EV idiosyncrasies deter some buyers. Lost sales of EVs translate into higher sales for internal combustion engine and hybrid vehicles, which use platinum and palladium for pollution control in catalytic converters.

A 2024 survey by Deloitte¹³ revealed US consumer preference for their next vehicle powertrain is 67% incombustible carbon engines (ICE), 16% hybrid electric, and 5% plug-in hybrid, all of which require a catalytic converter that uses either platinum or palladium¹⁴.

It would seem to be news to the platinum and palladium market that 88% of those surveyed want a vehicle that needs a platinum or palladium auto catalyst. Platinum and palladium join oil in the potentially oversold category from our point of view. While it is true that a world full of EVs needs fewer catalytic converters and, therefore, auto catalyst metal demand may fall, it is also true that higher ICE sales mean higher auto catalyst metal demand like platinum and palladium.

Final thoughts

In 2023, investors were focused on interest rate policymaker decisions. However, this year we believe it would be wise if investors focus on decisions being made in voting booths around the world. The potential change in trading policies, alliances, and sanctions may have an effect on commodity prices. Negative sentiment appears overdone in oil, copper, platinum, and palladium while improvements in demand for gold from central banks and ETF investors warrants attention.

¹ abrdn, CIA World Factbook, 2023.
² Prior to the August 2023 meeting, members consisted of Brazil, Russia, India, China, and South Africa.
³ Grand Ethiopian Renaissance Dam is expected to be the largest hydroelectric power plant in Africa from the Blue Nile River, one of the two main tributaries of the Nile River.
⁴ Council of Foreign Relations is an independent nonpartisan member organization think tank and publisher.
⁵ The Society for Worldwide Interbank Financial Telecommunication (SWIFT) system provides worldwide financial transaction and payment services.
⁶ Bloomberg, as of December 31, 2023. Bloomberg data in ETF global gold flow in ounces in aggregate stopped on October 5, 2023.
⁷ Bloomberg data gold price return for the period October 5, 2023, through December 31, 2023.
⁸ The Organization of Petroleum Exporting Countries (OPEC) refers to a group of 12 oil exporting countries.
⁹ The Commodity Futures Trading Commission (CFTC) is an independent agency of the US government that regulates US derivatives markets, including futures, swaps, and certain options.
¹⁰ Bloomberg, CFTC, as of January 9, 2024. “Net non-commercial WTI contracts.”
11 "Copper could skyrocket over 75% to record highs by 2025 — brace for deficits, analysts say." CNBC, January 2024. https://www.cnbc.com/2024/01/03/copper-appears-set-to-rally-more-than-75percent-by-2025-analysts-say.html.
¹² Bloomberg, as of January 16, 2024.
¹³ Deloitte multinational professional services group, considered one of the “Big Four” accounting firms.
¹⁴ "2024 Global Automotive Consumer Study." Deloitte, 2024. https://www2.deloitte.com/us/en/pages/consumer-business/articles/global-automotive-consumer-study.html.

Important information

The statements and opinions expressed are those of the author and are as of the date of this report. All information is historical and not indicative of future results and subject to change. Reader should not assume that an investment in any securities and/or precious metals mentioned was or would be profitable in the future. This information is not a recommendation to buy or sell. Past performance does not guarantee future results.

Trading in commodities entails a substantial risk of loss and is not suitable for all investors.

Diversification does not eliminate the risk of experiencing investment losses.

Prospectuses for abrdn Physical Gold Shares ETF, abrdn Physical Palladium Shares ETF, abrdn Physical Platinum Shares ETF, abrdn Physical Precious Metals Basket Shares ETF and abrdn Physical Silver Shares ETF

Projections are offered as opinion and are not reflective of potential performance.

Projections are not guaranteed, and actual events or results may differ materially.

ALPS Distributors, Inc. is the marketing agent.

There are risks associated with investing including possible loss of principal.

ALPS is not affiliated with abrdn.

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