Commodity prices rallied in the first six months of 2018, but much of those gains have evaporated in the second half of the year due to a whole host of factors.

Oil prices gained 3% in the third quarter, but fell dramatically since then. Meanwhile, metal and agricultural prices declined 10% and 7%, respectively, also in the third quarter amid robust supplies and trade disputes.

Fundamentally, the US-China trade war has negatively impacted agriculture and industrial metal prices, while US production growth and softening demand trends have weighed on the petroleum complex. This leaves the commodities market outlook for 2019 binary for now, and dependent on the policy path of US-China trade, the emerging economies’ prospects, and OPEC quotas.

More recently, steep equity index drawdowns, an inverted US yield curve and more dovish US Federal Reserve have become particularly important barometers for global growth expectations and in turn commodities, such as gold.

Commodities have also been impacted by investment flows leaving exchange traded funds. By the end of November, around USD 19.5 billion of flows had exited energy, USD 9.2 billion from agriculture, USD 5.73 billion from precious metals and USD 3.75 billion from base metals, according to Citibank data.

Assets under management in commodity funds dropped 10% to 15% year to date to reach USD 411 billion in November, a downward trend that began in July, which analysts expect would continue through this winter before stabilising and potentially increasing.

Commodity investor sentiment has also been hit by negative technical factors such as a strong US dollar, weak forward curve term structure, and higher market volatility, especially in the energy sector.

The World Bank’s latest report on commodities expect agriculture prices to rise nearly 2% in 2019 as input costs, such as energy and fertilisers, climb.

The downside risks to the price forecast emanate from escalating trade tensions between major economies, the World Bank noted. On the upside, risks include persistently high energy prices, which would raise fuel costs, fertiliser prices, as well as encouraging biofuels production, thereby lifting prices of energy-intensive crops, notably grains and oilseeds.

Metal prices are forecast to gain 5% in 2018 and stabilise in 2019, reaching slightly lower levels than previously expected, the bank said in its latest report.

Downside risks include a worsening of trade tensions between the United States and China, and weaker global growth. Upside risks include stronger demand from China due to policy stimulus, and tighter environmental constraints and policy actions that limit production, notably in China.

Gold has fallen 6.64% year to date, belying its stature as a safe haven despite tremendous geopolitical volatility. Gold demand was 964.3 tonnes in the third quarter, just 6.2 tonnes higher year on year, with demand in the Middle East trending lower. Robust central bank buying and a 13% rise in consumer demand offset large ETF outflows, according to the World Gold Council.

The outlook for gold seems uncertain in 2019, as many different factors could pull price in opposite directions.

Looking ahead, in our base-case scenario, we expect gold’s price to flatline out to June 2019, assuming an absence of sudden unexpected events that shock global financial markets,” according to investment firm WisdomTree UK Ltd.

However, should events turn out differently and some of the geopolitical concerns crystallise into an adverse shock, gold could trade substantially higher. Investors concerned about adverse geopolitical shocks may have found a good entry point.

Oil prices are expected to trend up, after the Organization of the Petroleum Exporting Countries and its allies decided to adjust overall production by 1.2 million barrels per day (bpd), effective January 2019 for an initial period of six months. The contributions from OPEC and the voluntary contributions from non-OPEC participating countries is 0.8 million bpd (2.5%), and 0.4 million bpd (2%), respectively.

In looking to 2019, it is vital that we all have a clear understanding of the potential impact of developments on supply and demand fundamentals,” Suhail Mohamed Al Mazrouei, president of the OPEC Conference, said at the 5th OPEC and non-OPEC Ministerial Meeting in December in Vienna, Austria.

Our focus needs to be on helping maintain the balance that has been achieved, and sustaining the stability that has been realised. It is vital that our hard-earned achievements are not compromised or lost.

Much will depend on US shale producers, which continue to raise production, thus keeping a lid on prices. The US Department of Energy’s latest forecast suggests US crude oil production will average 10.9 million bpd for the whole of 2018, up from 9.4 million bpd in 2017, and will average 12.1 million bpd in 2019.