Where are the next commodity opportunities?

Investing.com -- UBS said in a note Thursday that the case for commodity exposure extends well beyond energy, pointing to industrial metals, agriculture and gold as sources of both return and inflation protection.

"While shifting conditions in the Middle East continue to impact oil and refined product markets, we believe the case for broad commodity exposure as both a source of return and an inflation hedge extends beyond energy," the bank's strategists wrote.

Energy remains volatile. European natural gas prices, measured by Dutch TTF futures, traded around 65 euros per megawatt-hour on Aug. 26, just below a three-year high reached earlier in the week, while Brent crude was near $87 a barrel.

UBS said reports that Iran and Oman are finalizing an agreement on the Strait of Hormuz are being offset by the prospect of stepped-up U.S. sanctions.

Beyond oil, the bank said AI infrastructure and electrification underpin the long-term outlook for industrial metals such as copper.

In agriculture, forecasts point to roughly an 80% probability the current El Niño develops into a very strong or "super" episode by year-end, with a 97% chance conditions persist into next year. Wheat climbed 6.6% and corn rose 2.7% to three-year highs on Aug. 26.

Gold should stay supported by central bank demand and reserve diversification despite a more challenging near-term outlook, UBS said.

The bank favors a diversified, regularly rebalanced approach with active management, noting that commodities have shown a 0.44 correlation with global equities since 1999.

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