{"id":13254,"date":"2023-05-24T16:01:24","date_gmt":"2023-05-24T20:01:24","guid":{"rendered":"https:\/\/ifintechworld.com\/markets\/goldman-sachs-sees-potential-for-strong-commodity-performance-after-largest-de-stocking-ever-witnessed\/"},"modified":"2023-05-24T16:01:25","modified_gmt":"2023-05-24T20:01:25","slug":"goldman-sachs-sees-potential-for-strong-commodity-performance-after-largest-de-stocking-ever-witnessed","status":"publish","type":"post","link":"https:\/\/ifintechworld.com\/?p=13254","title":{"rendered":"Goldman Sachs sees potential for strong commodity performance after largest \u2018de-stocking\u2019 ever witnessed"},"content":{"rendered":"
\n

Commodity prices have suffered an overall decline so far this year, with a recent \u201cde-stocking,\u201d or decline in physical inventories, potentially giving way to strong gains in the sector if the economy avoids a recession, said economists at Goldman Sachs. <\/p>\n

Mounting concerns over the health of the financial sector, U.S. debt ceiling risks, fears of an impending demand slowdown in the West, and a disappointing recovery in China in April have contributed to \u201cfears of an upcoming U.S. or global recession,\u201d the Goldman Sachs economists, lead by Jeffrey Currie, wrote in a note dated Tuesday. <\/p>\n

\n

\u201cThe bottom line is markets have cashed in on their insurance policies in the form of physical and financial hedges,\u201d they said. \u201cOn net, that leaves the entire complex exposed to upside should recessionary risks not materialize.\u201d <\/p>\n

<\/p>\n
\n

\n \u201c<\/span> \u201cThe bottom line is markets have cashed in on their insurance policies in the form of physical and financial hedges. On net, that leaves the entire complex exposed to upside should recessionary risks no materialize.\u201d \u201d<\/span>\n <\/p>\n


\n \u2014 Goldman Sachs economists<\/span>
\n <\/small><\/p><\/div>\n<\/p><\/div>\n

From a portfolio perspective, this also \u201cmakes a strategic commodity allocation a very good hedge,\u201d they said.<\/p>\n

In Wednesday dealings, the S&P GSCI
\n SPGSCI,
\n +0.39%<\/bg-quote>,<\/span>
\n a benchmark for investments in the commodity markets, was trading more than 10% lower year to date after posting gains in each of the past two years, FactSet data show. <\/p>\n

Goldman Sachs forecast a return of 30.3% in the S&P GSCI on a 12-month horizon.<\/p>\n

\u201cCommodities and rate markets have priced in a recession, while equities have only priced in the positive aspects of that outcome via lower interest rates and lower commodity prices,\u201d the Goldman economists said. The absence of a recession \u201cwould likely lead to higher oil and commodity prices, as well as higher rates, to which equities would likely react poorly.\u201d<\/p>\n

The physical de-stocking in the commodities markets, which Goldman Sachs sees as \u201clikely the largest commodity de-stocking the complex has ever witnessed,\u201d is not irrational if a U.S. recession over the next year is expected, the economists said.<\/p>\n

\u201cRecessionary concerns, higher rates, and healing in global goods supply chains have led to a broad de-stocking of wholesale goods and inputs,\u201d the Goldman economists said.<\/p>\n

While markets put the chance of a U.S. recession at 55%, Goldman Sachs puts it at 35%.<\/p>\n

Western manufacturing demand for metals has been weak but like oil, strong emerging markets demand has been \u201coffsetting that weakness keeping inventory levels low,\u201d said the Goldman economists. <\/p>\n

At the same time, recessionary concerns have resulted in commodity prices that are lower than what fundamentals would suggest, they said. For oil, they estimate that at around $10 to $15 a barrel and for copper
\n HGN23,
\n -2.53%<\/bg-quote>
\n around $1,000 per metric ton. <\/p>\n

Making a reference to the hand game known as \u201crock paper scissors\u201d, the Goldman economists said \u201cpaper\u201d, or speculative positioning in financial commodities, is currently beating \u201crock\u201d, which is represented by commodity fundamentals. In the hand game, \u201cpaper\u201d can cover and take a win over \u201crock\u201d. <\/p>\n

However, barring a global recession, the \u201crock\u201d, or fundamentals, should beat \u201cpaper\u201d thereby \u201ccreating an unwind of the significant build up in short\u201d positions, the economists said. <\/p>\n

\u201cEvidence\u201d in commodities supports \u201cstronger, not weaker, demand,\u201d they said. For oil
\n CL.1,
\n +1.29%<\/bg-quote><\/p>\n

CLN23,
\n +1.29%<\/bg-quote>
\n in particular, the International Energy Agency and other forecasters, including Goldman Sachs, have \u201csteadily increased\u201d oil demand growth forecasts this year. <\/p>\n

Given that 70% of oil demand is tied to the service sector of economies in the West and China, where there is still \u201cplenty of room to rise back to trend,\u201d such strong growth in oil demand should be expected into the end of this year,\u201d the Goldman economists said.<\/p>\n

For natural gas
\n NGM23,
\n +3.62%<\/bg-quote>,<\/span>
\n current lower prices, restocking, and above-consensus economic activity is likely to lead to \u201csequentially rising demand,\u201d they said. <\/p>\n

Read:<\/strong> Natural-gas prices have dropped by nearly half this year, despite output risks and higher demand prospects<\/p>\n<\/p><\/div>\n<\/div>\n

Read the full article here<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Commodity prices have suffered an overall decline so far this year, with a recent \u201cde-stocking,\u201d or decline in physical inventories, potentially giving way to strong gains in the sector if the economy avoids a recession, said economists at Goldman Sachs. Mounting concerns over the health of the financial sector, U.S. debt ceiling risks, fears of […]<\/p>\n","protected":false},"author":1,"featured_media":13255,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"gallery","meta":{"footnotes":""},"categories":[241],"tags":[83],"class_list":["post-13254","post","type-post","status-publish","format-gallery","has-post-thumbnail","hentry","category-markets","tag-featured","post_format-post-format-gallery"],"yoast_head":"\nGoldman Sachs sees potential for strong commodity performance after largest \u2018de-stocking\u2019 ever witnessed | iFintechWorld<\/title>\n<meta name=\"description\" content=\"Commodity prices have suffered an overall decline so far this year, with a recent \u201cde-stocking,\u201d or decline in physical inventories, potentially giving\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" 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