(Bloomberg) — Commodity prices will rise this year, supporting industrial and consumer demand as central banks in the U.S. and Europe move to cut interest rates, according to Goldman Sachs Group.
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Analysts including Samantha Dart and Daan Strouben say raw materials returns could be 15% by 2024 due to lower borrowing costs, a rebound in manufacturing and continued geopolitical risks. stated in a memo dated March 24th. The bank said it also stressed the need for investors to be selective, as copper, aluminum, gold and petroleum products can appreciate and gains are not universally available.
Commodity prices rose slightly in the first quarter, with oil prices rising, gold hitting a new record, and copper topping $9,000 per tonne. Policymakers at the U.S. Federal Reserve and the European Central Bank have said they intend to cut borrowing costs this year as inflation declines. In addition, China announced further support for reconstruction.
“We find that U.S. interest rate cuts in a non-economic environment lead to higher commodity prices, with metals (particularly copper and gold) seeing the biggest boost, followed by crude oil,” the analysts said. “Importantly, the positive impact on prices tends to increase over time as the growth impulses of easing financial conditions take hold.”
Goldman's cautiously bullish outlook echoes comments from other market watchers. Macquarie Group said earlier this month that commodities were entering a new cyclical upswing, supported by tight supplies and an improving global economy. Jeff Currie, former head of commodities research at Goldman and now at Carlyle Group LP, also expects profits to rise as the Fed lowers interest rates. Elsewhere, JPMorgan Chase highlighted the potential for gold's upside.
Goldman's year-end forecast calls for copper to reach $10,000 per tonne, aluminum to $2,600 per tonne and gold to $2,300 per ounce, which would be nominal records. On the London Metal Exchange, the latest prices for base metals were around $8,886 and $2,310 per tonne, while bullion was around $2,167 per ounce.
“Over the medium term, we continue to maintain a constructive view on gold, buoyed by eventual Fed easing,” the analysts said, referring to exchange-traded fund flows, which remain largely dormant. “ETF buying should definitely be reinvigorated.”
In contrast, banks remained bearish on the outlook for battery metals such as nickel, cobalt and lithium carbonate, stressing the need for a selective approach. “We believe it is too early to put a definitive end to each bear market,” the analysts said.
The Federal Reserve kept interest rates on hold last week, but officials remained firm on their outlook for three rate cuts this year. Still, the U.S. inflation measure, the Fed's preferred measure of underlying price pressures, to be released in the coming days will likely remain uncomfortably high in February.
(Adds outlook for US inflation data in last paragraph.)
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