Goldman Sachs Group Inc., a full-service global investment banking and securities firm which recommendations are capable of moving financial markets, yesterday pared its 12-month commodity return forecast to almost flat. Goldman’s analyst kept a neutral recommendation on raw materials while projecting losses for gold and gains for base metals.
The New York-based bank said in its latest report that the Standard & Poor’s GSCI Enhanced Commodity Index will return 0.1 percent over the period. That compares with a forecast gain of 2.3 percent over 12 months in a report on June 12.
Precious metals and agricultural commodities may drop 8 percent over the 12-month period, while base metals may advance 6 percent, Goldman Sachs Group Inc. said. Gold for December delivery traded in the green territory, at $1,331 today. Despite that the most-active prices have declined already 21 percent in 2013, in recent days the yellow metal’s price looks like positioned to advance further.
The so-called strategic case for holding commodities remains strong, partly because raw materials are a hedge against geopolitical risks, analysts wrote in the report. Commodities as tracked by the enhanced index advanced to the highest level since February last week as West Texas Intermediate crude oil traded at the highest price in 16 months.
The bank’s current outlook is extremely benign with returns expected to be mostly flat over the next 12 months.
Crude in New York rallied 11 percent this month through yesterday, and settled at $108.05 a barrel July 19, the highest since March 2012. Political upheaval in Egypt spurred concern that unrest may spread, potentially disrupting shipments from the Middle East. The U.S., the largest oil consumer, also showed signs of recovery, helping to boost prices as inventories fell. WTI traded at $106.18 a barrel at 4:49 p.m. in Singapore.
However, the latest neutral recommendation from Goldman contrasts with the position from UBS AG, Switzerland’s largest bank. UBS rated commodities as underweight in its latest report from July 2. Slow economic growth in the U.S. will boost equities more than raw materials, according to UBS, which is bearish on gold.
Bullion is heading for the first annual drop in 13 years amid speculation the U.S. Federal Reserve will rein in stimulus as the largest economy improves. Chairman Ben S. Bernanke will very much likely trim monthly bond buying to $65 billion from September onwards from $85 billion.
Gold in New York may decline to $1,050 an ounce at the end of 2014, Goldman said, restating a forecast from June 24. It is a good sign that the bank’s analysts did not revise the previous forecast further on the downside.