Goldman Sachs (NYSE:GS) has projected a 21% increase in commodity returns over the coming year, driven by a combination of higher spot prices, easing monetary policies, and an improving economic landscape. The forecast comes amid a backdrop of recession concerns and significant structural tailwinds that could offer substantial carry returns.
The investment bank's outlook suggests that commodities could benefit from their hedging value against geopolitical supply risks, especially in energy and industrial metals. Despite a slight decline in the S&P GSCI Commodity Index this year, energy and industrial metals are expected to see returns of approximately 31% and 17.8%, respectively.
Goldman Sachs analysts pointed to core disinflation as a sign that interest rate hikes by the U.S. Federal Reserve and the European Central Bank may be nearing an end. This shift is anticipated to ease GDP growth pressure and boost demand for commodities. Additionally, decreases in oil inventories driven by OPEC and a growing demand for green metals from China are expected to further strengthen commodity markets.
In scenarios where growth is lower than expected, energy and gold are seen as offering hedging value against negative supply shocks that could affect other asset classes. While Goldman Sachs foresees a recovery in oil prices due to ongoing demand resilience, it has revised its 2024 average Brent price forecast down to $92 a barrel from $98. This revision accounts for the potential impact of a warmer fourth quarter and increasing oil supply.
Looking ahead, Goldman Sachs anticipates a sharp tightening in copper and aluminum stocks around the middle of the decade, which is likely to drive up prices starting from the second half of 2024. The firm's analysis indicates that these commodities will play a crucial role in the years to come as demand patterns shift and supply dynamics evolve.
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