Commodities: Investors primed on gold

Key Highlights

• Retirement funds are the largest holders of commodities funds
• The European region recorded the highest growth in terms of AuM
• Rising gold prices could spur new fund launches in 2025

Overview

The US Federal Reserve’s decision to cut interest rates toward the end of September 2024 had a positive impact on the commodities sector – with gold especially boosting on gains made earlier in 2024, when persistent inflationary pressures prompted investors to adopt hedging strategies to safeguard portfolios against economic uncertainty.

The global outlook for gold remains upbeat with more US Fed rate cuts anticipated in 2025, as lower rates typically lead to higher gold prices – which already charted double-digit percentage gains over the course of 2024.

Additionally, gold-backed instruments play a crucial role in liquidity management strategy in Islamic debt and investments. Commodity Murabahah contracts also leverage gold to ensure compliance and provide an efficient liquidity solution. These are among the key reasons why gold investments form the bulk of Islamic commodity fund holdings.

Chart 1: Commodities funds by classification

Source: IFN Investor Funds Database

The IFN Investor Funds Database features funds oriented toward income growth and risk management, incorporating commodities into their portfolios. Retirement funds represent the largest holders of commodities within these categories, valued at US$8.12 billion in assets under management (AuM) as at the 31^st December 2024.

Turkiye is a key jurisdiction for commodity funds, with gold participation funds accounting for the highest AuM valuation.

Chart 2: Top performing Islamic commodity funds by three-month returns

Source: IFN Investor Funds Database

The last quarter of 2024 demonstrated strong returns for commodity funds, with the IFN Investor Funds Database tracking stronger performances driven by higher allocations to gold products – as Islamic commodity funds primarily invest in precious metals. A small minority of these funds also incorporated Shariah compliant shares, further diversifying their portfolios.

AuM growth

The Islamic commodities asset class funds in Q4 2024 performed better compared to Q3 2024. Notably, the AuM for commodity funds rose across the four regions, with Europe experiencing the highest percentage growth at 33.03%.

• Europe: Up by 33.03% from US$6.95 billion to US$9.25 billion.
• Middle East: Up by 15.56% from US$10.15 million to US$11.73 million.
• Africa: Up by 9.39% from US$17.05 million to US$18.65 million.
• Asia Pacific: Up by 7.42% from US$33 million to US$35.45 million.

The Americas do not have any Islamic commodities funds at the time of writing.

Table 1: Top performing Islamic commodities funds by region in Q4 2024

Outlook

Looking ahead to 2025, the outlook remains favorable for commodity fund performances, particularly within income growth and risk management portfolios. With precious metals like gold anticipated to maintain their momentum due to robust central bank demand and diversification strategies, funds with significant commodity exposure are well-positioned to deliver steady returns.

This notable increase in gold prices has led to the anticipated launch of new gold funds in 2025 – as many investors are expected to consider gold as an essential component of their investment portfolios, recognizing its potential for continued gains.

With its recognition as a safe-haven asset during times of economic uncertainty, the consensus of analysts predicts that gold prices could rise significantly in 2025, with forecasts suggesting potential levels topping US$3,000 per ounce under favorable conditions.

Islamic commodity funds tracked by the IFN Investor Funds Database