Bloomberg News

Goldman Lowers 12-Month Forecast for Commodity Gains to 15%

November 16, 2011

(Adds analyst comments from fourth paragraph.)

Nov. 14 (Bloomberg) -- Goldman Sachs Group Inc. lowered its forecast for commodity gains in the next year to 15 percent after correctly predicting the climb in prices since the beginning of last month.

The S&P GSCI Enhanced Commodity Index will be led by gains in industrial metals in the next year, Jeffrey Currie, a Goldman analyst in London, wrote in a report today. The bank, which lowered its commodities forecast from 20 percent last month, says copper will gain 22 percent and London oil 10 percent.

Goldman correctly advised investors to sell oil and copper in April and turned more bullish the following month before prices rebounded. It lowered its commodities outlook after the GSCI Enhanced gauge jumped 15 percent since Oct. 4. Raw materials have gained as European leaders attempted to contain the region’s debt crisis and the Federal Reserve signaled more stimulus may be available to spur growth.

“Notwithstanding the continuing European crisis, we maintain our view that global growth will provide enough support to demand to drive key commodity prices higher over the next 12 months,” Currie wrote in the report.

Winners, Losers

Energy commodities will climb almost 19 percent in the next 12 months, and industrial metals will advance 26 percent, Goldman said. Precious metals will increase 5 percent, livestock will rise almost 11 percent and agriculture will drop 5.1 percent. Copper will be at $9,500 a metric ton in London in a year and London oil will be at $125 a barrel, the bank said.

Goldman held its price forecasts for industrial metals and raised its estimates from an Oct. 4 report for New York and London oil, gasoline, gold and live cattle. It cut its outlook for wheat, soybeans, cotton and sugar.

Europe’s inability to contain a regional debt crisis that started in Greece more than two years ago led to a surge in Italian bond yields as investors bet on which nation may need aid next. Mario Monti, a former European Union competition commissioner, was offered Italy’s prime minister post. George Papandreou resigned last week as Greek prime minister to make way for a coalition led by Lucas Papademos.

Whirlpool vs Rocks

“The commodity markets continue to navigate between a potential European whirlpool on one side and rocks on the other side, which the market will likely run up against should demand not falter and supply constraints force price spikes to balance the market,” Curry wrote. “We continue to emphasize that concerns about being pulled under by the whirlpool have pushed key commodity prices too low relative to current fundamental balances.”

Commodities as measured by the GSCI Enhanced index are up 3.7 percent in 2011, heading for their weakest performance since 2008. The International Monetary Fund is forecasting economic growth of 4 percent in 2012, unchanged from this year.

Goldman forecast that gold will be at $1,930 an ounce in 12 months, compared with $1,776.90 by 6:28 a.m. in New York. Silver will be 6.1 percent lower at $32.20 an ounce and wheat will fall 8.3 percent to $5.90 a bushel in Chicago.

Editors: Claudia Carpenter, Sharon Lindores

To contact the reporter for this story: Nicholas Larkin in London at nlarkin1@bloomberg.net

To contact the editor responsible for this story: Claudia Carpenter at ccarpenter2@bloomberg.net


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