UBS strategists said in a note that broad commodity exposure ought to extend past energy, pointing to industrial metals, agriculture and gold as areas that can provide both returns and a hedge against inflation.
Energy market backdrop
Energy markets remain subject to sharp swings. On Aug. 26, European natural gas as measured by Dutch TTF futures traded near 65 euros per megawatt-hour, a level just below a three-year high reached earlier that week. Brent crude was trading around $87 a barrel on the same day.
UBS highlighted a complex geopolitical picture tied to maritime security in the Gulf region. Reports that Iran and Oman are close to finalizing a pact regarding the Strait of Hormuz are counterbalanced, the bank said, by the prospect of increased U.S. sanctions - a dynamic that contributes to ongoing energy market uncertainty.
Industrial metals: structural demand drivers
Looking beyond hydrocarbons, UBS pointed to industrial metals such as copper as beneficiaries of structural trends. The bank said that demand for AI infrastructure and for electrification more broadly supports a positive long-term outlook for these materials.
Agriculture: weather risks and price moves
Weather patterns also factor into UBS's view on commodities. Forecasts cited by the bank indicate roughly an 80% probability that the current El Nio will develop into a very strong or "super" episode by year-end, and a 97% chance that El Nio conditions will continue into the following year. On Aug. 26, that backdrop coincided with sharp moves in grain markets as wheat climbed 6.6% and corn gained 2.7%, both reaching three-year highs.
Gold and reserve diversification
UBS said gold should remain supported by central bank buying and by efforts to diversify reserves, even if the metal faces a more challenging near-term outlook. The bank recommends viewing bullion as part of a broader portfolio allocation to commodities.
Portfolio approach and correlations
The bank favors a diversified and regularly rebalanced commodities allocation, combined with active management. UBS noted that, since 1999, commodities have exhibited a correlation of 0.44 with global equities, underscoring that commodities can offer exposure that is neither perfectly correlated nor entirely independent of stock markets.
Bottom line
UBS's note frames commodities beyond oil - namely industrial metals, agricultural crops and gold - as viable sources of return and inflation protection, while flagging ongoing energy volatility and weather-driven agricultural risks as key uncertainties for markets.