Goldman Says Commodities, Shares Diverge as Stockpiles Jump

Commodity returns have diverged from developed equity markets amid expectations for rising metal stockpiles and energy supplies, according to Goldman Sachs Group Inc., which maintained its neutral outlook on raw materials.

Returns for commodities as gauged by the Standard & Poor’s GSCI Enhanced index will be 1.6 percent over 12 months, analysts led by Jeffrey Currie wrote in a report dated yesterday. That compares with an earlier estimate for a 2.5 percent return, according to an April 23 report. Goldman is most bearish on agriculture, forecasting a 13 percent loss over 12 months.

The Standard & Poor’s 500 Index of stocks advanced to a record yesterday, bolstered by improving confidence in the world’s largest economy as the U.S. Federal Reserve presses with unprecedented stimulus. Commodities, as tracked by the S&P GSCI Enhanced index, are 3.6 percent lower in 2013 with declines in copper, corn and gold. Money managers are the most bearish on commodities in four years, with a net 29 percent underweight, a Bank of America Corp. survey showed yesterday.

The divergence between commodities and developed stocks “represents a significant departure from the past decade, where correlations across assets were particularly high,” New York-based Currie wrote. “Given where we are in the current business cycle with excess capacity and slow growth, the lack of commodity returns and volatility should be expected.”

Energy Return

Industrial metals led by copper have a more bullish near-term outlook, while energy is estimated to deliver a return of 5 percent over a year, Goldman said. The selloff in gold had been faster than expected, and further sales from exchange-traded products may push prices lower, the analysts wrote.

The S&P 500 rallied almost 16 percent this year through yesterday, beating the 2.6 percent increase in New York-traded crude futures. Gld lost 15 percent in the same period, dropping into a bear market last month after rallying for 12 years. Copper fell 8.7 percent.

Developed-market equities and commodities had risen to records in tandem in 2007, Goldman said. The current divergence between the two came as so-called idiosyncratic microeconomic drivers reasserted themselves, it said, citing rising energy supplies and metal inventories.

The bearish agriculture view was driven by prospects for higher output in the Americas and rising reserves, the bank said. Global stockpiles of corn, wheat and soybeans will jump 13 percent to 416 million metric tons this year, the highest in over a decade, the U.S. Department of Agriculture said May 10.

Wheat fell 10 percent to $6.97 a bushel this year, corn dropped 6.6 percent to $6.52 a bushel and soybeans are little changed at $14.04. Goldman’s 12-month forecasts are $6.25 for wheat, $5.25 for corn and $12.50 for soy.

Accelerating economic growth later this year and into next may tighten commodity markets and create better opportunities for investors, the bank said.

The global economy will expand 3.3 percent this year, rising to 4 percent in 2014, the Washington-based International Monetary Fund said on April 16.