Goldman Sachs Group Inc. forecast commodities will return 5 percent this year as it lowered its outlook to “neutral,” citing recent gains in prices and risks in the U.S.
The advance in the Standard & Poor’s GSCI Enhanced Commodity Index will include 7 percent for precious metals, 6.5 percent for energy and 5 percent for livestock, the bank said in a report dated yesterday. The U.S. reached its $16.4 trillion borrowing limit on Dec. 31, and policy makers are still struggling to resolve their differences over the budget after agreeing to avert more than $600 billion in automatic tax increases and spending cuts that were due to start this year.
“Significant near-term downside risks still exist from the U.S. debt-ceiling debate and the fiscal drag from tax increases,” Jeffrey Currie, New York-based head of commodities research, wrote in the report. “Given these downside risks posed by the U.S. and the recent price increases excluding precious metals and natural gas, we are shifting our commodity recommendation to neutral on both a near and 12-month horizon.”
The S&P GSCI Enhanced gauge is up 0.2 percent since the start of the year after declining 0.1 percent in 2012, the worst performance since 2008. Crude oil has gained 2.4 percent this year in New York, copper advanced 1.8 percent in London and corn is 3.5 percent higher in Chicago.
Crude oil and copper will drive commodity returns in 12 months, while corn will be strong in the first half of the year on tight supply and a forecast rebound in global growth, the bank said. Agriculture will lose 1 percent in 12 months and industrial metals will gain 3 percent, according to Goldman. In December, the bank forecast a 7 percent return from commodities in 12 months, led by energy and precious metals.
The sell-off in gold is a “good entry point to re-establish fresh tactical longs” before the run-up to the debt ceiling debate, which may drive prices higher before the gold cycle turns later this year, Currie wrote. Gold futures on the Comex in New York are down 4.8 percent since Nov. 23.