Commodities, as key inputs in manufacturing and consumer staples, can be leading indicators of emerging inflation and exposure to them can serve to potentially hedge inflation risks.

Source: Target 2024 weights. Market Access, index issuer websites: RICI, Bloomberg Commodity Index, UBS CMCI, S&P GSCI. RICI - Rogers International Commodity Index (RICIGLTR), BCOM – Bloomberg Commodity index (BCOMTR), UBS CMCI Constant Maturity Commodity Index (CMCITR), S&P GSCI - S&P GSCI Index (SPGCGPTR).

RICI index background

James B. Rogers, Jr. designed the index in the late 1990s. His focus was to create an index that reflected global consumption of commodities.

This global focus differentiates the RICI from other commodity indices, meaning that it includes commodities like rice, rubber, white sugar and lumber.

There are 11 commodities in the RICI that are not included in the other three comparison benchmarks. They represent 9.05% of the index target weights.

Source: Data as of 30 September 2024. Market Access, Bloomberg.

Commodity in focus – Gold

Gold has been one of the top performing assets over the first nine months of 2024. We look at some the factors that will influence the gold price over the final quarter of the year. These include the outlook for interest rates, particularly in the US, the US presidential election and other geopolitical events, changes in tax policies in India, and central bank buying.

While optimism earlier in the year about the number of rate cuts in 2024 was dashed by relatively strong growth and inflationary pressures, we have now seen the UK and US follow the European Central Bank in reducing interest rates in August and September respectively. Economists at Goldman Sachs now expect the U.S. Federal Reserve to deliver consecutive 25-basis-point (bps) interest rate cuts from November 2024 through June 2025 to a terminal rate range of 3.25-3.5%.^[1]

Lower interest rates point to a lower US dollar, which on balance should prove a positive for the gold price. In the US, where focus is increasingly turning to the presidential election in November, there is now greater uncertainty about the possible outcome. Uncertainty and risk increase investor appetite for holding gold. The prospect of a Trump presidency, which would be likely to feature increased tariffs, increased scope for trade wars, efforts to weaken the US dollar, and an increasing deficit, would on balance be supportive of gold as a hard asset.

In India, the customs duty on gold was reduced by more than 50%, from 15% to 6%, with effect from 24 July. This reduction could lead to an increase in demand both during the upcoming buying season (between August and December) and over the longer term. The World Gold Council’s econometric model suggests that Indian consumer demand, that is jewellery and bar and coin demand, could see an additional 50 tonnes or more in the second half of 2024.^[2]

Another factor that could increase gold demand in India is the revised definition of “Specified Mutual Funds” that excludes gold ETFs from debt and money market. This will result in a change to a more favourable tax treatment, for which eligibility is being shortened from 36 months to 12 months. While the impact of these changes will not be immediate as they are due to take effect from 1 April 2026, it will make investing in gold ETFs more attractive and so should lead to an uptick in demand.^[3]

Lastly, the role of central banks will be an important element to observe. The World Gold Council estimates that central banks contributed 5% to the move in the gold price in the first half of the year. ^[4] However, the People’s Bank of China did not buy any gold in May or June, potentially because it was looking to support China’s currency. Despite its pause, the World Gold Council expects central bank buying to remain above trend. This is backed up by its February-April 2024 central bank survey showing that 29% of gold reserves managers expect to increase gold exposure in the next 12 months, a figure that has grown each year since 2019, and 68% believe their exposure will remain unchanged.^[5]

• ^[1]Reuters, Goldman Sachs expects series of consecutive 25 basis point Fed cuts ahead, October 2024
  https://www.reuters.com/markets/rates-bonds/goldman-sachs-expects-series-consecutive-25-basis-point-fed-cuts-ahead-2024-10-16/
• ^[2]World Gold Council, Indian gold import duties reduced to the lowest level in over a decade, 26 July 2024
  https://www.gold.org/goldhub/gold-focus/2024/07/indian-gold-import-duties-reduced-lowest-level-over-decade?%3A_Your_Weekly_Gold_Market_Round-up%2C_July_26%2C_2024=
• ^[3] See 2 above.
• ^[4] World Gold Council, Global Mid-Year Outlook 2024: Market in search of a catalyst, 2 July 2024
  https://www.gold.org/goldhub/research/gold-mid-year-outlook-2024
• ^[5]World Gold Council, 2024 Central Bank Gold Reserves Survey, 18 September 2024
  https://www.gold.org/goldhub/data/2024-central-bank-gold-reserves-survey

key features