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Robert Minter, director of ETF investment strategy at abrdn takes a look at passive investing in commodities and shares his thoughts on where there could be investment opportunities – particularly for gold – in 2024.  

Minter first joined the company 18 years ago, when it was known as Standard Life Investments. Before his current role at the firm, he ran multi-asset mutual funds for eight years: “Multi-asset investors are all about the correlations, and when they change and when things act differently from how they’re supposed to, this puts our antennae up,” he observes.  

Gold is one of the commodities drawing his attention at the moment, as he explains: “US interest-rate cuts are on the table in 2024, supporting both gold and silver. The last three federal-funds target rate cycles kicked off gold bull markets after the final rate hike of the cycles in 2000, 2006 and 2018, leading to massive increases in gold prices.  In those periods gold rose 55 per cent, 235 per cent and 70 per cent respectively.” 

He adds: “If investors do not have an allocation to gold, they should consider it.”

Minter is currently focused on two situations where it might be expected that investors have below-usual allocations to commodities. The first is a significant global recession in which investors may want less commodity exposure, aside from gold. But this is not currently anticipated, as he observes: 

“We do not see a significant global recession as a likely scenario at this time. A soft landing is the most probable scenario. Investors are under-allocated to emerging market equities and commodities. A soft landing will expose the attractive valuations in those areas relative to developed-market equities and to the low inventory levels in commodities. The relative valuation differences in some cases are extreme and a normalisation in price and valuations could occur quickly.”

The second situation is the possibility of government policy changing, from the current supply restrictions on industrial metals and oil, to actively promoting supply expansion − in which additional global supply would lower prices, as would lowering trade barriers. 

“Guyana just became the 10th largest oil producer, pushing the UK out of the top 10. The implication for Guyana is increased attention from Venezuela, as the oil sits in a disputed border region. The implications for the UK occurred years ago as West Texas Intermediate crude is accepted for settlement of the Brent contract to preserve liquidity as North Sea production falls. I am not worried about the UK economy, however, as the energy production from wind has been an incredible success. 

“But it does remind us that it is far easier to cut oil production than to cut oil demand. Global oil demand continues to grow at one to 1.5 per cent per year as it has on average over the past 50 years. The energy transition will have short-term periods of success and failures along the route to the goal. Investors may participate in those trends with industrial metals, without which there will be no energy transition.”

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