(Bloomberg) — Commodities will once again become the best-performing asset class in 2023, giving investors returns of more than 40%, according to Goldman Sachs Group Inc.
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The Wall Street bank said that while the first quarter could be “bumpy” due to economic weakness in the US and China, the scarcity of raw materials from oil to natural gas and metals will drive prices. afterward.
Goldman predicts a multi-year commodity super cycle by the end of 2020. It remains that way even as energy prices have fallen in recent months due to China’s coronavirus containment measures. Countries and the global economic downturn restrained demand.
Goldman analysts including Jeff Currie and Samantha Dart wrote on December 14: “Although prices for many commodities have nearly doubled year-on-year in May 2022, capital investment across the entire commodity mix was disappointing.” 2022 — even the unusually high prices seen earlier this year cannot generate enough capital inflows and thus supply response to address the long-term shortage.”
The bank expects the S&P GSCI Total Return Index – a leading measure of commodity price volatility – to rise 43% in 2023. That would add up to a 24% gain so far this year. In contrast, US stocks fell about 16%, while government bonds also fell.
Goldman isn’t the only one among analysts and investors bullish on commodities. Many argue that a lack of exploration for new oil fields and investment in fields has led to depleted reserves and a tight market. The top 15 commodity-focused hedge funds have increased their assets by 50% this year to $20.7 billion, according to preliminary data from Bridge Alternative Investments Inc.
“Without sufficient capital investment to create a spare supply capacity, commodities will remain stuck in shortages for long periods of time, with higher prices and higher prices,” Goldman analysts said. more volatile”.
The bank forecasts that Brent crude will rise to $105 a barrel in the final quarter of 2023, up from $82 today. It saw copper jump to $10,050 a tonne from around $8,400 and Asian benchmark liquefied natural gas up from $33 per million British thermal units to $53.10.
However, some rival analysts are skeptical, saying economies are too fragile for commodities to appreciate much more.
“The situation may be changing,” said analysts at Citigroup Inc., led by Ed Morse. “The possibility of a global recession poses a threat to an asset class that has experienced a renaissance over the past two years.”
(The previous version of this story revised the year-to-date gains for the S&P GSCI Total Return Index by 24%.)
–With support from Jake Lloyd-Smith.
(Updated in fifth paragraph with performance of other assets.)
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