Goldman Sachs continues to ratchet up predictions for commodities, laying out a bullish case for commodities of all stripes in 2018.
The investment bank said that its forecast a year ago for higher commodity prices ‘played out much better than expected.’ The bank pointed to industrial metal prices, which are up 24 percent this year, plus the 13 percent increase in oil prices.
But looking forward, Goldman sees plenty of room to run. ‘The demand backdrop today is now even stronger than a year ago, with robust and synchronous global growth clearly evident,’ Goldman analysts, led by Jeffrey Currie, wrote in a December 11 research note. The extension of the OPEC deal also led the bank to revise up its forecast for oil prices, as inventories should continue to fall throughout 2018.
There are other reasons to be bullish on commodities. The investment bank argues that commodities tend to outperform other asset classes when central banks move to tighten rates. That is because rate hikes typically occur when demand is exceeding supply – the higher prices resulting from that mismatch are why central banks are trying to raise rates, but it is those higher prices that support the investment case into commodities.
The report concluded that “a positive carry in key commodity markets and already strong global demand growth across the commodity complex reinforces the case for owning commodities. And hence we maintain our 12-month overweight recommendation, now with a forecasted return of almost 10 percent.”
This post was published at FinancialSense on 12/15/2017.