Commodities as an asset class remain appealing as the global economic recovery extends into 2015, according to Goldman Sachs Group Inc.
The bank raised its 12-month allocation for commodities to neutral from underweight, analysts led by Jeffrey Currie and Damien Courvalin wrote in a report dated yesterday. They increased their three and six-month price forecasts for nickel and rolled the 12-month predictions for aluminum and zinc forward to higher levels.
Raw materials as measured by total returns on the Standard & Poor’s GSCI Enhanced Commodity Index added 4.2 percent this year as global equities increased 2.3 percent and the Bloomberg U.S. Treasury Bond Index rose 2.7 percent. Citigroup Inc. said last month it was time to take commodities seriously again to diversify investment portfolios after they beat equities and bonds in the first quarter.
“Commodities have been caught in a tug of war,” the Goldman Sachs analysts wrote. “As the global business cycle shifts into an expansion phase over the next few years we expect commodity performance to improve.”
Total returns for the enhanced index may be zero percent over the next three months and decline 2.2 percent over 12 months, according to the bank. It expected the gauge to drop 4 percent over 12 months in an April 13 note.
“We continue to believe the commodity super cycle is over,” Aakash Doshi, a Citigroup Global Markets vice president in New York, said in a telephone interview on March 28. “That doesn’t mean that there is going to be an absence of seasonality and cyclical turns in the asset market.”
A Barclays survey published in an April 4 report showed 54 percent of investors planned to boost their stake in commodities in the next 12 months versus 27 percent who did in the preceding year, according to analysts led by Kevin Norrish.
There has been little clear directionality in commodity markets over the past month, the Goldman analysts said. Tension in Ukraine has supported corn and wheat even as global agriculture stockpiles remain elevated, while weakness in the Chinese property sector weighed on copper amid a seasonal pick-up in demand, they said.
As growth accelerates, supply and demand fundamentals in base metals are expected to tighten by the middle of next year, the bank said. It raised its six-month forecast for nickel to $22,000 a metric ton from $20,000 amid supply disruptions at Vale SA’s New Caledonia plant, Indonesia’s ban on ore exports and tension between Russia and Ukraine.
Goldman kept its 12-month nickel target at $16,000 as Chinese producers will probably increase blast furnace nickel pig iron capacity in Indonesia over the next one to two years. Nickel for three-month delivery on the London Metal Exchange has climbed 49 percent this year to $20,728 by 4:33 p.m. in Singapore today.
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