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Following Goldman Sachs bullish call for higher oil Goldman ramped up it's bullish call for commodities prices in 2018 in a note to clients late Monday. It seems $GS is all in on China growth. The bank sees growth across raw materials maintaining its 12-month overweight recommendation on commodities.

Goldman Sachs Commodity ForecastGoldman Sachs is forecasting returns of 10 percent from commodities in 2018. They see the strong demand for raw materials (read that as Chinese demand) driven by backwardation that’ll lead to a positive roll yield. The rational here is that investors will sell higher priced expiring contracts at the end of each month and buy cheaper futures the following month or later to maintain their exposure. In this scenario the investor picks up a roll premium. 

The Bloomberg Commodity Index has risen around 6 percent since the second half of June. Investors have been buying everything from crude to cotton and gasoline to industrial metals. Goldman sees 15 percent returns next year from the backwardation roll yield in oil and expects other metals markets to join zinc in backwardation. Goldman doesn’t expect the oil market to shift back into contango  in 2018.

Goldman Sachs global head of commodities research Jeffrey Currie said  “we would argue that a positive carry in key commodity markets and already strong global demand growth across the commodity complex reinforces the case for owning commodities, and hence we maintain our 12-month overweight recommendation, now with a forecasted return of almost 10%.”

It should be noted that $GS sees “significant divergences” in metals where they are most bullish on copper and most bearish on aluminium. “The difference lies in the supply dynamics… while copper supply is likely to become increasingly constrained over the coming years, aluminum supply should become more abundant.”

Investment banks continue to promote lack of risk and high sustainable asset prices; in the note analysts cite;

"Given that equities are supported by robust views around future growth, should these views falter even as current activity remains robust, commodities should outperform equities and other asset classes, reinforcing our overweight view.”  Goldman's note concluded

For copper and aluminum. “In both cases robust and synchronous global growth will help to keep metals demand strong across the board in 2018,” Goldman said. For copper, while healthy supply growth is expected in 2018 and 2019, the bank said the market is now at the end of an expansion boom as capex investment contracted sharply after the commodity selloff in 2014. Goldman forecast copper at $7,050 a metric ton next year for on the London Metal Exchange. On aluminum, Goldman sees rising odds of more supply from both inside China, mostly in areas with limited air-pollution problems, and outside of the Asian nation, making $GS bearish.

Commodity Index

Lots of outs here in metals with no recognition of risks on the horizon, Goldman is notorious for being wrong on commodities and touting the extremes as safe. Next up Goldman calls for Blockchain commodity funds?

Source: Goldman Sachs, Bloomberg

From The TradersCommunity Research Desk

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