Goldman Sachs expects increased returns on commodities over the next 12 months, buoyed by higher spot prices amid easing monetary policy and recession fears while the asset class also strengthens on hedging against geopolitical supply risks.
The bank has forecast returns of 21% on commodities over a 12-month horizon on the oil-heavy S&P GSCI Commodity Index, led by returns of about 31% from energy and 17.8% from industrial metals.
The index has fallen by 0.8% so far this year.
"We recommend going long commodities in 2024, as we expect somewhat higher spot commodity prices from an improving cyclical backdrop, significant carry returns from structural tailwinds, and see hedging value against negative supply shocks," the bank said in a note dated Sunday.
Core disinflation suggests that the U.S. Federal Reserve and European Central Bank have finished raising interest rates, which is likely to ease pressure on GDP growth and support commodities demand.
Commodity returns will also be bolstered by OPEC-driven declines in oil inventories and demand for so-called green metals, primarily from China, Goldman said.
"Energy and gold can also be an effective hedge against negative supply shocks, from geopolitical or other developments, in scenarios where other assets (especially risk assets) suffer from lower growth," the bank wrote.
The bank expects "ongoing resilience" in demand to drive a recovery in oil prices, though factors including the possibility of a warmer fourth quarter and rising supply from some producers prompted it to trim its 2024 average Brent price forecast to $92 a barrel from $98 a barrel previously.
In metals, Goldman forecast a sharp tightening in copper and aluminium stocks into the middle of the decade, driving up prices from the second half of 2024.
(Reporting by Harshit Verma in Bengaluru, Editing by David Goodman)