Goldman Sachs Group Inc. (GS) is staying “overweight” on commodities as a rebound in demand revives speculation of shortages, with gold a favorite for 2012 as investors seek a hedge against Europe’s debt crisis.
Gold futures traded on the Comex in New York may climb to $1,940 an ounce in 12 months as U.S. interest rates and inflation are expected to remain low, Jeffrey Currie, head of commodities research, said at the company’s Strategy Conference 2012 in London today, repeating the bank’s December forecast. Gold has dropped 16 percent from a record in September.
Demand for gold strengthened most of last year as Europe’s debt crisis widened and the U.S. Federal Reserve pledged to keep interest rates near zero until at least mid- 2013. Low interest rates increase the appeal of bullion because they generally reduce the prospect of returns on bonds.
“Our view on gold is driven by our view on underlying real interest rates,” Currie said in an interview at the conference. “It is the sharp drop in price that makes it more attractive.”
Gold futures for March delivery were unchanged at $1,616.80 an ounce at 5:11 p.m. in London.
Morgan Stanley also named gold among its top picks in a report e-mailed today, saying bullion may average a record $2,200 an ounce. Gold prices are unlikely to move higher than $1,940 unless there is a “much weaker real rate environment” driven by inflation, which is not embedded in Goldman’s forecast, Currie said.
Buying by central banks (001.046) will continue to support gold as emerging markets banks continue to diversify their reserves, Currie told the conference. Goldman also favors oil and copper on supply constraints, Currie said.
“The core of the commodities story is a supply-side story,” Currie said today. “I don’t care how much demand China may have for a commodity. If the world can produce enough of it, I don’t want to be long.” A long position is a bet on higher prices.
Goldman correctly advised investors to sell oil and copper in April and turned more bullish the next month before prices rebounded. The Standard & Poor’s GSCI Enhanced Commodity Index will return 15 percent in 12 months, Currie said
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