Commodities

Goldman By Stocksak: Commodities important for diversifying portfolio risks


© Stocksak. FILE PHOTO – The Goldman Sachs logo can be seen in the company’s area on the New York Stock Exchange floor, (NYSE), in New York, U.S.A, April 17, 2018. REUTERS/Brendan McDermid

(Stocksak). Despite continued underperformance to their fundamentals due to a strong dollar and rising recession fears and decreasing liquidity, commodities remain a key asset for diversifying portfolio risk, analysts at Goldman Sachs said.

“Oil and pockets in the agriculture sector offer investors welcome options for portfolio diversification at an time when the tactical outlook on other asset classes remains cautious,” said the Wall Street bank in a note.

The bank forecast returns of 12.8%, 21.1% and 34.9% on commodities over a three-, six- and 12-month horizon, respectively, on the oil-heavy S&P GSCI Commodity Index.

The bank predicted returns of 46.7% in energy, 29% in industrial metals, 23.8% in precious metals, and 29% in metals over a 12-month span.

As a result, commodity markets are under pressure. Rapid interest rate increases around the world have slowed economic growth and decreased demand.

“Even if there is no clear macro picture, commodity markets, including oil, move at their own pace, driven by micro fundamentals and OPEC+ cuts and low stocks and spare capacity that is supporting price,” Goldman Sachs stated.

Oil prices have fallen by more than 30% since they reached $139 per barrel in March. Base metals have also been affected by COVID-19 flare-ups in China and global slowdown fears. [O/R] [MET/L] [GOL/]

Base metals are the most leveraged to the dollar, Goldman stated, noting that “upside risks” created by a ban on LME (London Metal Exchange), tight micro fundamentals, and a possible LME ban make shorting dangerous.

The gold price has fallen more than $400 since surpassing the $2,000 per ounce mark earlier in this year.

Goldman anticipates that gold could rally to $2250 per ounce in the event of a large U.S. recession, and fall to $1500 per ounce under an ultra-hawkish Federal Reserve scenario.

It said that silver and platinum have outperformed gold this past year and that they believe an improvement in the global economic cycle is necessary to reverse this underperformance.

News Source and Credit

Stocksak Editorial

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