Goldman Sachs predicts strong commodity returns next year

Goldman Sachs expects a bullish commodity market next year and expects a 30% return over the next 12 months from a commodity basket.

“Since stocks decline so early in the cycle, we see a structural bull market for commodities emerging in 2021,” Goldman Sachs analysts led by commodities research chief Jeffrey Currie said.

What commodities is Goldman Sachs bullish on?

Goldman Sachs is particularly bullish on non-energy commodities like metals and agricultural products. “In our view, base metals and agriculture have more near-term potential than oil, with smaller stocks to go before prices start to rise,” Goldman Sachs analysts said.

He cited strong demand in China as a driving force behind the rise in commodity prices. Goldman Sachs also sees adverse weather conditions as a bullish driver for the prices of agricultural production.

China is the biggest consumer of almost all commodities. It also holds the lion’s share in the supply dynamics for many metals such as steel and aluminum. However, since the country is not self-sufficient for its raw material needs, it depends on imports of key commodities like copper and iron ore.

Chinese demand rebounds

The demand environment in China tends to have a disproportionate impact on commodity prices. For example, commodities fell in 2015 amid concerns over a hard landing in the Chinese economy. In 2020, with the rest of the world still grappling with the pandemic and the resulting economic turmoil, the Chinese economy has returned to growth after the crisis in the first quarter. A strong Chinese economy has helped metals like copper reach multi-year highs.

Goldman sees inflation returning

“We see the upward trends in social needs, alongside investor complacency with inflation, as increasing the political risks of a policy with an inflationary bias,” Goldman Sachs analysts said. . They added: “As a result, we expect increased rotation to commodities as a hedge against inflation.”

Commodities tend to do well in times of high inflation. A weaker dollar is another positive for commodity prices as they have a negative correlation with the dollar. Commodities are traded on the US dollar thus, a fall in the greenback makes commodities cheaper to buy in other currencies.

While the US dollar was strong at the start of the pandemic, it has been weak thereafter. A massive stimulus in fiscal and monetary policy put pressure on the greenback. Additionally, many see the fall of the US dollar as a reflection on how the country has handled the pandemic. The United States has the highest number of virus cases as well as deaths in the world.

How could commodities react to the US elections?

Goldman Sachs sees a bullish argument for commodities if Joe Biden wins the next US election. He expects U.S. copper demand to grow 2% each year over the next five years as part of Biden’s plan. That said, commodities rebounded in 2016 after the surprise election of Donald Trump. Trump had pledged to invest substantially in the infrastructure sector during his tenure. Investments in infrastructure stimulate demand for raw materials such as steel, aluminum and copper. However, Trump’s trillion-dollar infrastructure plan never really took off, even though the president kept some of his other pre-election promises, like tax reforms.

Goldman Sachs Provides Forecast For Commodities

Goldman Sachs also provided its forecasts for various commodities. he is waiting gold price averaging $ 2,300 an ounce in 2021. Currently, the yellow metal is trading around $ 1,915 an ounce. Most brokerages have a bullish outlook on gold.

Bank of America predicts the yellow metal will hit $ 3,000 an ounce by the end of 2021. Frank Holmes, managing director of investment firm US Global Investors expects prices to hit $ 4,000 an ounce, forecasting a rally of more than 100% from current levels.

Copper price

Goldman Sachs is waiting copper price to reach $ 7,500 per metric tonne over the next 12 months. Currently, spot copper is trading at just under $ 7,000 per metric tonne. Copper prices have risen by more than 13% so far in 2020. Copper is particularly regarded as a barometer of the world economy given its diverse use in sectors ranging from construction, automotive and consumer goods.

How to trade and invest in commodities?

There are many ways to trade and invest in commodities. You can trade them through one of the best online commodity brokers. You can also invest in certain commodities through binary options. There is a list of some of the best binary options brokers.

If you are not used to investing in commodities and still want exposure to them, you may want to consider ETFs. There are ETFs that give you exposure to a basket of commodities as well as those focused on a specific commodity like copper or oil.

By investing in an ETF, you get returns linked to the underlying index after factoring in fees and other transaction costs. There is also a guide on how to trading ETFs

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