Commodities Could Be in a Bull Market in 2021: Goldman Sachs

Goldman Sachs is anticipating a surge in silver, copper, gold, natural gas and Brent crude oil next year

Frank Holmes | November 3, 2020 | SmallCapPower: Jet regrade—the relative strength of jet fuel prices versus diesel—looks primed for a bull market in 2021 as flight demand continues to increase, according to Goldman Sachs. By next summer, jet fuel demand is expected to be higher by 3.9 million barrels per day than where it stands right now.

(The following is an article originally published on usfunds.com on October 26, 2020)

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Among other commodities that could also surge next year, the investment bank says, are silver, copper, gold, natural gas and Brent crude oil.

In a note to clients, Goldman analysts cited a weaker dollar, inflation and additional monetary and fiscal stimulus as reasons for a potential rally in commodity prices. A 12-month return of 30 percent is forecast for the S&P GSCI, which tracks 24 commodities from all commodity sectors. Industrial metals, including copper, could increase 5.5 percent; precious metals, 18 percent; and energy, more than 42 percent.

Goldman sees the price of gold averaging $2,300 an ounce in 2021, while silver is projected to average $30 an ounce.

Here at U.S. Global Investors, we’re very bullish on commodities, particularly industrial and precious metals. The manufacturing PMI in a number of countries shows that factories are expanding capacity on a greater number of new orders. In August, the U.S. manufacturing PMI registered 56.0, the highest reading since November 2018. The PMI in China—the world’s biggest importer of metals and other raw materials—was 51.5 last month, well above the five-year average of 50.6.

As I’ve noted before, commodities continue to look remarkably cheap relative to stocks. Below is a chart showing the ratio between the S&P GSCI and S&P 500. At no other time going back to 1972 have commodities been as undervalued as they are today. If Goldman’s projections turn out to be accurate, now could be a phenomenal buying opportunity.

Doctor Copper Briefly Crosses Above $7,000 a Tonne, Thanks in Large Part to China

“Doctor copper” is so named because its price is seen as a good indicator of economic health. If that’s the case, then the economy isn’t nearly as bad as we thought it was.

In intraday trading last Wednesday, copper briefly crossed above $7,000 a tonne, its highest level since June 2018. From its low in late March, the red metal has risen close to 50 percent on hopes of further government stimulus and increased demand, particularly from the renewable energy industry and China.

In July, China’s copper imports hit an all-time high of 762,210 tonnes as the government unleashed stimulus aimed at building bridges, roads, railroads, broadband and more.

That includes renewable energy projects such as wind and solar. According to a report this month by the Global Wind Energy Council (GWEC), China led the world in adding new offshore wind capacity in 2019, with 2.4 gigawatts (GW) installed, representing nearly 40 percent of total new wind power across the globe.

The market cap of China’s LONGi Green Energy Technology, the world’s largest solar power company, recently climbed higher than that of oil major China National Offshore Oil Corporation (CNOOC), the country’s largest oil and gas producer. This not only represents a significant shift in energy trends, but it’s also highly supportive of copper prices.

I expect China’s appetite for metals and other raw materials to keep pace as it continues to stimulate its economy—which managed to grow, I should add, an historically low and yet impressive 4.9 percent in the third quarter compared to the same period last year.

We’ll receive third-quarter economic data for the U.S. on Thursday this week. I hope to see a huge improvement over the second quarter, when real GDP fell at an annual rate of 31.4 percent, according to Bureau of Economic Analysis (BEA).

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