In addition to strengthening as an asset class for hedging against geopolitical supply risks, Goldman Sachs anticipates stronger returns on commodities over the next 12 months, driven by higher spot prices amid easing monetary policy and concerns about a recession.

Over a 12-month period, the bank projects gains on the oil-heavy S&P GSCI Commodity Index of 21%, driven mostly by returns of roughly 31% from energy and 17.8% from industrial metals.

This year, the index has decreased by 0.8% thus far.

“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 indicates that interest rate increases by the US Federal Reserve and the European Central Bank are complete, which should relieve pressure on GDP growth and boost demand for commodities.

According to Goldman, falls in oil stocks caused by OPEC and demand for so-called green metals, mainly from China, will also support commodity returns.

“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 reduced its projection for the average Brent price in 2024 from $98 per barrel to $92 per barrel due to variables such as the probability of a warmer fourth quarter and increased supply from some suppliers. Despite this, the bank still believes that “ongoing resilience” in demand will support a recovery in oil prices.

Goldman predicted that metals prices will rise starting in the second half of 2024 due to a substantial tightening of copper and aluminium stockpiles into the middle of the decade.

(Adapted from Investing.com)