Goldman Sachs Group Inc (GS:US). forecast precious metals and livestock will lead a 1.1 percent gain in commodities in 12 months, saying it will wait for physical markets to confirm recovery before raising individual estimates.
The advance in the Standard & Poor’s GSCI Enhanced Commodity Index will include a 2 percent gain in energy, with precious metals to climb 5 percent and livestock to advance 4.5 percent, the bank said in a report e-mailed today and dated yesterday. Agriculture will be down 3.5 percent and industrial metals will fall 1 percent.
“Renewed optimism has been mostly based on momentum and forward-looking survey data and far less on hard data and physical markets, which remain lackluster,” analysts led by New York-based Jeffrey Currie wrote in the report. “We are maintaining our price targets and recommendations and will wait for hard data and physical markets to confirm the optimism before raising estimates.”
The S&P GSCI Enhanced gauge is up 3.8 percent since the start of the year after declining 0.1 percent in 2012, the worst performance since 2008. Brent crude oil has gained 6.1 percent this year in London, and cotton jumped 9.7 percent, while nickel is 6.6 percent higher in London.
The bank lowered its outlook for commodities to “neutral” last month while forecasting a 5 percent return in a year.
Manufacturing in the U.S. reached a nine-month high in January and expanded for a fourth month in China, while services industries also gained, reports showed this month. The Institute for Supply Management’s employment gauge jumped to the highest since February 2006, according to a Feb. 5 report.
Goldman recommended buying copper to “capture the Chinese housing completion cycle” and a long position in the Brent GSCI Index to benefit from the “backwardation required by low crude inventories.” Goldman said copper will trade at $9,000 a metric ton in six months and Brent crude will be at $110 a barrel.
Brent oil traded near a nine-month high amid worsening tensions around Iran’s nuclear program. Brent for March settlement was at $117.84 a barrel, down 0.9 percent, by 2:41 p.m. on the London-based ICE Futures Europe. Copper for three- month delivery slid 1.3 percent to $8,187.50 a ton in London, up 3.2 percent since the start of the year.
So-called backwardation, signaling tight supplies, means that investors can get positive returns from rolling their positions from nearby to longer-dated contracts, Goldman said. High “roll yields” are available in Brent and soybeans, while investors may also get them in copper later this year, the bank said in a separate report dated Feb. 8. Positive returns are possible even if prices are stable or falling, Goldman said.
“Going forward, we expect the roll yield to contribute a larger share of the return from commodity investments than was the case in the years when long-dated prices were rising structurally,” the bank wrote. “This would be in line with the experience from the 1990s when we last saw stable long-dated commodity prices.”
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