Gundlach Sees Commodities Outperforming in Late-Cycle Boom

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Goldman's Currie Sees Oil Prices 'Flat to Down'

Jeffrey Gundlach, the billionaire bond manager, said commodities may be one of the best investments this year as they surge during the late phase of the economic cycle.

“I think commodities will outperform in 2018,” Gundlach said during his annual ‘Just Markets’ webcast on Tuesday, in which he gives his outlook for the coming year. “Commodities always rally sharply -- much more sharply than they have so far -- late in the business cycle as we lead into a recession.”

Gundlach presented a chart that showed the correlation between recessions and commodity prices, which tend to rise late in economic cycles dating back to the 1970s. “In front of each one, commodities rallied a huge amount,” said Gundlach, chief investment officer at Los Angeles-based DoubleLine Capital LP, which oversaw assets of about $119 billion at year-end. Investors shouldn’t buy specific commodities, but rather a broad basket, he said.

His thoughts on commodities echo Goldman Sachs Group Inc., which last month said raw materials will bring better returns than other assets in the long run on strong global demand, and reiterated its 12-month overweight recommendation. The Bloomberg Commodity Index of 22 raw materials has climbed about 11 percent since the second half of June.

Crude oil is trading at the highest in more than three years as the Organization of Petroleum Exporting Countries and its allies trim supply to drain a global glut. Prices of industrial metals including aluminum, zinc and copper have soared on the back of supply constraints and sustained demand. Spot palladium is set to break a record as it trades near prices last seen in 2001.

Citigroup Inc. has flagged some wild cards for 2018 which could have “significant consequences” for commodities. Among uncertainties highlighted were potential wars, Middle East tensions, and risks associated with the actions of U.S. President Donald Trump and North Korea’s Kim Jong Un.

— With assistance by Charles Stein

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