Bloomberg News

Copper, Oil, Gold May Drive Commodities Rally, Goldman Says

January 16, 2012

(Updates prices in fifth paragraph, adds farm comment.)

Jan. 13 (Bloomberg) -- Copper, oil and gold may rally this year as economic growth in the U.S. and China offsets the impact of a European recession, according to Goldman Sachs Group Inc., which maintained a forecast for commodities to climb 15 percent.

The economic outlook in the U.S. and Asia has improved and there’s less risk of a global financial crisis, analysts led by London-based Jeffrey Currie said in a report e-mailed today. Agricultural commodities may drop 3 percent this year, it said.

Goldman’s stance contrasts with the outlook from Morgan Stanley, which said in a report this week that it favored so- called defensive commodities such as grains, and expected fuel prices to drop. Last year, commodities climbed 2.1 percent, the weakest performance since the global recession in 2008.

“The economic data and outlook beyond Europe in the U.S. and Asia has been improving, shifting demand risks to the upside,” Goldman said in the report. “We view gold and copper as providing the best value opportunities relative to our view of fundamentals in 2012.”

Three-month copper on the London Metal Exchange may gain to $9,500 per metric ton in 12 months, Goldman said, sticking with a forecast. The metal traded at $8,017.25 at 7:28 a.m. in London. Brent crude may rise to $127.50 a barrel in 12 months, while gold futures may gain to $1,940 an ounce, it said. Brent was at $112.22 and February-delivery gold was at $1,648.40.

‘Tensions Escalate’

The risks to the upside in oil are “substantially greater” than for copper and gold “given the stronger fundamentals and recent events surrounding Iran and Nigeria,” Goldman said in the report. “Significant risk remains that as tensions escalate, brinkmanship in the Persian Gulf could lead to the closure of the Strait of Hormuz.”

Iran has threatened to try to close the strategic waterway should the European Union ban oil exports from the country to protest against its nuclear program. Nigerian labor unions said yesterday that they will continue a strike that threatens oil exports from Africa’s top producer.

Morgan Stanley said that a surge in oil would represent a selling opportunity as the bank sees “bearish” fundamentals, according to a report dated Jan. 8. Brent climbed $115.12 per barrel yesterday, the highest level since Nov. 9.

Farm Outlook

This year’s agricultural outlook will depend on weather in Argentina and Brazil, which is having a dry patch related to La Nina, the Goldman analysts said.

“A significant shortfall in South America production would further support the outperformance of soybeans over corn,” they said. That will “create upside risk to our current underweight in agriculture and our expected minus 3 percent return.”

Soybean futures in Chicago added 0.6 percent to $11.8975 a bushel, after a 6.8 percent gain last month. Corn was little changed at $6.1125 a bushel, after tumbling 6.1 percent yesterday, the most in three months, following a higher estimate for global supply from the U.S. government.

Credit Suisse Group AG said on Jan. 5 that industrial metals including copper may rebound this year as they slumped too far in 2011 on speculation there may be a global recession, according to Ric Deverell, head of global commodities research.

Borrowing Costs

Borrowing costs for Spain and Italy fell at debt sales yesterday, while European Central Bank President Mario Draghi said he saw “tentative signs” of stabilization in the euro region. Data today is expected to show U.S. consumer confidence is at a seven-month high, based on the median forecast in a Bloomberg survey of economists.

China’s inflation cooled to the lowest in 15 months in December, leaving the government more room to support growth as a global slowdown hurts exports. A report next week may show the world’s largest user of energy and metals expanded at the slowest pace in 10 quarters in the last three months of 2011.

“The key to the metals markets will be the ‘gap’ between the weakness today versus the demand strength to be created by both the monetary and fiscal stimulus that is likely to occur in 2012,” Goldman analysts said. “We believe some of the fiscal support will be targeted at metals intensive industries.”

--Editors: Jake Lloyd-Smith, James Poole

To contact the reporter on this story: Chanyaporn Chanjaroen in Singapore at cchanjaroen@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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