Investing.com – The macroeconomic challenges facing commodities in the first three quarters of 2024 have returned and become a tailwind entering the new year, according to analysts at Wells Fargo (NYSE:).

High interest rates and broader economic uncertainty weighed on commodity prices during the January to September period last year, although that trend largely reversed in the fourth quarter, analysts said. led by Mason Mendez said in a note to clients published on Monday.

Commodities as a whole gave a modest performance in 2024, they said, along with Bloomberg Commodity Total (EPA:) Return Index clocked a 4.5% year-to-date increase as of December 26.

“While supply conditions remain supportive of higher prices, commodity demand is constrained by global economic difficulties,” the analysts wrote.

Heat demand is seen to increase in 2025, which could be a possible spark igniting an increase in commodity prices, they added. However, they flagged that the supply side is “unforgivable.”

“After two years of sluggish commodity prices, many commodity producers are slowing production growth,” analysts said. “It could be a sharp point in 2025 when demand recovers at a faster pace than most expect.”

They note that new products often fall short of demand “for months, and sometimes years.”

Among the individual sectors, analysts say that they are most interested in precious metals, such as , and energy, both of which are expected to gain at least 10% in 2025. This will exceed the return expected in analysts from the middle of their 250- 270 target range range for the broader Bloomberg Commodity Total Return Index.

Gold, in particular, experienced a turbulent end to 2024 due in part to caution around further interest rate cuts by the Federal Reserve, which contributed to an increase in nominal and real yields in bond preventing appeal of non-yielding bullion.

However, the yellow metal jumped nearly 27% year-over-year to end the year at $2,625 per troy ounce, and the prospect of further Fed rate cuts – albeit at a slower pace – may continue to increasing its appeal, the Wells Fargo analyst said.

They set a target range for gold prices of $2,700-$2,800 per troy ounce this year.

Energy, on the other hand, is expected to benefit from more demand as global economic conditions improve, analysts predict. estimated between $85-$95 per barrel, while crude oil is seen at $90-$100 per barrel. Oil prices are down around 3% in 2024, weighed down in part by a slow post-pandemic recovery in global demand.