Cyclical risks fading for commodities - Goldman

Investing.com - Goldman Sachs maintains its positive view on the commodity markets, but says it’s important to stay selective even with fading cyclical risks.

The influential investment bank turned long on commodities early in 2024, citing cyclical and structural support to demand, and the role of commodities as a geopolitical risk hedge.

The bank now reiterates this view, three months into the year, with Commodity total returns at 9% year-to-date, below the 15% it expects by the year-end, which could climb to 20% in some sectors.

Goldman analysts expressed renewed confidence in cyclical support for the commodity sector . despite this being the main pushback from investors of late.

“With the trough in global manufacturing PMIs behind us and our economists’ strong conviction of rate cuts in the US and Europe from June this year, we expect further support to commodities demand and prices, particularly across copper, aluminum and oil products,” Goldman analysts said, in a note dated March 24.

Additionally, structural support to commodities remains intact, as evidenced by strong green metals demand and oil product margins year to date.

Lastly, the role of commodities investing as a geopolitical hedge remains topical, as illustrated by the ongoing Red Sea shipping disruptions and recent attacks on Russian refining capacity. 

That said, Goldman continues to emphasize the importance of being selective when investing in commodities, pointing to copper’s bullish qualities, while noting year-to-date price declines in U.S. natural gas and lithium, while nickel and zinc are roughly flat.