Commodities Will Surge in 2019, Goldman Sachs Predicts

2019 will be the year of commodities, according to Goldman Sachs. The Wall Street mega bank strongly believes that raw materials are due for a large comeback in the coming months given the huge disconnect between prices and fundamentals.

Big Commodity Rebound Ahead

Energy and primary metals are expected to rebound strongly in the coming months as political uncertainty begins to subside, Goldman said in a report. The bank predicts the upcoming Group of 20 summit in Buenos Aires, Argentina to be the primary catalyst for the rally. The summit, which takes place Nov. 30-Dec. 1, will host bilateral trade talks between U.S. President Donald Trump and Chinese counterpart Xi Jinping. Although a hard deal isn’t expected this week, both sides are expected to make progress on resolving their year-long trade spat.

“Given the size of dislocations in commodity pricing relative to fundamentals — with oil now having joined metals in pricing below cost support — we believe commodities offer an extremely attractive entry point for longs in oil, gold and base,” analysts said in a report, as quoted by Bloomberg News.

“Many of the political uncertainties weighing on commodity markets have a significant chance of being addressed in Buenos Aires,” Goldman said. “This includes some improvement on the China-U.S. relationship and, like in the 2016 G-20 meetings, some greater clarity on a potential OPEC cut.”

Oil prices have been caught in a severe downward spiral emanating from strained U.S.-China trade relations, a slowing global economy and an oversupplied market. The Organization of the Petroleum Exporting Countries (OPEC) is expected to address supply concerns at its forthcoming meeting in Vienna, Austria next month, though the extent of the production cuts could be limited.

Other Raw Materials to Consider

Goldman’s view lines up with a recent analysis that raises the potential for a bull market in raw materials next year. Copper, aluminum and nickel could be due for a large rebound over the next few years as markets contend with a severe supply shortage following an extended period of underinvestment. The growth of electric vehicles is expected to underpin demand for copper and aluminum while the easing of trade tensions between the U.S. and China could generate additional support for crude prices.

Gold prices are also expected to rebound now that the market has priced in ten of 12 expected Federal Reserve interest rate hikes. This is critical from the perspective of the U.S. dollar, whose strength undermines demand for hard commodities. At the same time, a slowing U.S. economy will help bolster gold’s appeal as a defensive asset.

The G20 summit is also expected to boost some agricultural products. Goldman predicts that the easing of trade tensions will support soybeans and other grains.

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