Goldman Sachs Turns Bullish On Commodities, Spotlights Copper Ahead Of Federal Reserve Shift

After taking a cautious stance on commodities during a summit in Davos, Goldman Sachs is turning bullish, predicting a more upbeat outlook ahead of likely interest rate reductions by central banks.

Per a Bloomberg report, analysts Samantha Dart and Daan Struyven forecast a potential 15% surge in raw material prices throughout the year.

The sector will benefit from reduced borrowing costs, recovering manufacturing sectors, and prevailing geopolitical tensions, the analysts predict.

The bank highlights commodities such as copper, aluminum, gold, and oil products as potential climbers. However, it stresses the importance of discernment among investors, as not all commodities may experience universal gains.

In the first quarter of 2024, commodities have already displayed modest advancements, with notable rises observed in crude oil, gold reaching record highs, and copper surpassing $9,000 per ton.

These advancements coincide with signals from policymakers at the Federal Reserve and the European Central Bank indicating an inclination towards rate cuts to address receding inflation.

China’s commitment to further bolster its economic recovery also provides an additional tailwind.

Also Read: Fed’s Dovish Stance Ignites Market Rally – ‘Everybody Is Bullish,’ Veteran Wall Street Investor Says

Goldman Sachs has provided specific year-end price forecasts, with copper expected to reach $10,000 a ton, aluminum at $2,600 a ton, and gold at $2,300 an ounce. However, the bank clarifies the need for selectivity, as not all commodities may experience uniform gains.

Echoing Goldman Sachs’ sentiment, other market analysts, such as those at Macquarie Group and JPMorgan Chase, have also expressed optimism about the cyclical upswing of commodities. Their analysts point out tighter supplies owing to environmental and political risks, paired with a resurgence in the global economy.

Kathy Kriskey, a senior strategist at Invesco, highlighted historical trends where raw material prices have shown positive returns during periods surrounding central bank easing cycles.

Meanwhile, ING provided insights into the copper market, noting that mine supply constraints would create shortfalls despite an initially balanced outlook for 2024. Factors such as Chinese smelter production curbs and the pace of Chinese copper demand recovery are expected to influence market dynamics. Additionally, the impending end of the Federal Reserve’s interest rate tightening cycle is anticipated to lift copper prices, aided by a weaker US dollar.

Although Fed Chairman Powell recently reiterated a wait-and-see stance regarding the first interest rate cut, there are two essential things to consider from a debt issuance standpoint. The beginning of Q2 will bring tax receipt season, fueling the ever-constrained U.S. budget but temporarily alleviating the necessity for new debt issuance—a situation that might change as that tailwind subsides and futures contracts rollover in June.

Thus, a rate cut in May would be a timely endeavor for the Fed. However, with commodities posting solid growth year-to-date, the analysts must decide how much has already been baked into that rise.

Prospective investors in Copper might want to check Sprott's newly launched Copper Miners ETF COPP

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