Goldman Expects A Structural Bull Market for Commodities in 2021, Sees Gold Hitting $2,300
The comments below are an edited and abridged synopsis of an article by Tyler Durden
A weaker US dollar, rising inflation risks and demand driven by fiscal and monetary stimulus from central banks will spur a bull market for commodities in 2021, said Goldman’s chief commodity strategist Jeffrey Currie. Commodity markets are in or moving toward a deficit, he added, with inventories drawing in all but cocoa, coffee and iron ore.
The bank, which notes that markets are increasingly concerned about the return of inflation, forecast a return of 28% over a 12-month period on the S&P/Goldman Sachs Commodity Index (GSCI), with a 17.9% return for precious metals, 42.6% for energy, 5.5% for industrial metals and a negative return of 0.8% for agriculture.
Currie said, “Such broad-based deficits are usually only seen late in the business cycle, underscoring the unique environment markets are in. Given that inventories are drawing this early in the cycle, we see a structural bull market for commodities emerging in 2021.” The bull market will be driven by three major themes: structural under-investment in the old economy; policy driven demand; and macro tailwinds from a weakening dollar and rising inflation risks.
Even if demand falters as winter exacerbates Covid-19, Goldman still expects markets to continue rebalancing, barring an outright collapse in demand. As for energy, Goldman says that while oil inventories remain high, upside in energy prices will likely come after winter. However, non-energy commodities face immediate upside, as balances have tightened ahead of expectations, driven by Chinese demand and adverse weather shocks.
As for gold, Currie said that expansionary fiscal and monetary policies continue to drive interest rates lower and create demand for hedging the tail risks of inflation, lifting demand for precious metals. Goldman forecasts gold at an average of $1,836 in 2020 and $2,300 in 2021, and expects silver to be around $22 in 2020 and $30 next year.
Non-energy commodities could see an immediate upside as the market balances tighten ahead of expectations on strong demand from China and weather-driven risks, Currie said.