The “super cycle” of gains for commodity prices is not ending as improving global economic growth boosts demand for raw materials, Goldman Sachs Group Inc. said.
Rising consumption may create limited availability of immediate supplies and boost near-term prices higher than long- term levels, a trading opportunity that may provide “significant” returns, New York-based Jeffrey Currie, Goldman’s head of commodity research, said in an e-mailed report today. The bank reiterated its recommendation that investors should be “overweight” in commodities, and that prices will return 7 percent in 12 months.
“As economic growth improves into the latter half of 2013, we believe current fundamentals are likely to create near-term shortages,” Currie said. “We now believe that any upside will be more near term and demand driven in nature as opposed to long term and supply driven, which leads us to expect a return to high near-term prices relative to long-term prices.”
The Standard & Poor’s GSCI Spot Index of 24 raw materials which has increased almost fourfold since 2001, is little changed this year as growth slowed in economies including China, the world’s biggest consumer of cotton, soybeans and copper. Goldman’s view contrasts with Citigroup Inc., which said the “super cycle” has ended in a Nov. 19 report written by analysts including Edward L. Morse, the bank’s global head of commodities research.
“With commodity supply constraints easing, Chinese growth slowing and producer company returns normalizing, it is tempting to call an end to the commodity super cycle,” Goldman said. “However, we believe current market developments are simply the next phase of a commodity investment cycle that commenced in the late 1990s and, like previous phases, it will create new investment opportunities and should therefore be viewed more as a ‘renaissance.’”
Hedge funds and other money managers have increased their bets on higher commodity prices in the past two weeks, with investor net-long positions climbing 20 percent since Nov. 13 to 929,588 futures and options contracts, U.S. government data show. Holdings are still down 30 percent since this year’s peak in September as Chinese manufacturing cooled, Europe’s debt crisis worsened and U.S. leaders failed to reach a budget agreement to avoid the so-called fiscal cliff of tax increases and spending cuts.
Goldman recommended an equally-weighted position in rolling front-month indices in petroleum, corn and copper, with a targeted return of as much as 12 percent over six months. The bank forecast crude oil on the New York Mercantile Exchange at $99 a barrel in 2014, saying the global market will stay “cyclically tight” with low inventories next year and in 2014.
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