Goldman says commodities outlook strong, pullbacks a buying opportunity

Reuters

Published Jul 08, 2022 01:22PM ET

(Reuters) - The fundamental outlook for commodity prices is strong with inventories of metals and energy continuing to fall from low levels, Goldman Sachs (NYSE:GS) said, terming a recent price pullback as longer-term buying opportunities.

Commodities markets have been oversold, de-linking with supply-demand fundamentals, the bank said in a note dated July 7.

"Mobility remains robust globally and continues to recover strongly in China and the oil market is pointing to a 1 million barrel per day (bpd) deficit. U.S. and European aluminium premia remain historically high, while physical order books for metals remain strong," the bank said.

Commodities will weather risks of a recession in the United States and Europe in the next 12 months, "on China’s large-scale counter-cyclical stimulus," the bank said.

It forecast returns of 34.4%, 30.4% and 36.9% on commodities over a three-, six- and 12-month period respectively on the S&P/GSCI Goldman Sachs Commodity Index (GSCI), adding commodities were a "great macro hedge."

"An allocation to a true real asset like commodities remains a necessity to protect a multi-asset portfolio."

Industrial metals were seen returning 57.2% over a 12-month period, followed by precious metals at 48%, energy at 40.7%, and agriculture at 24.4%, the bank said.

As for energy, Goldman reiterated its view that the oil market was in a structural deficit.