Goldman Sachs sees energy netting returns of 31% over the next 12 months, with commodities expected to gain as a hedge against supply risks threatened by geopolitical developments such as the Hamas-Israel war.
Goldman is forecasting 21% returns on commodities overall for the prior as spot prices rise, monetary policy becomes less hawkish, and recession fears subside somewhat. The biggest gainers will be energy and industrial metals, the investment bank said in a note.
Goldman expects 17.8% returns for industrial metals, with copper and aluminum stocks tightening, leading to a rise in prices in the second half of next year.
Goldman recommends “going long commodities” next year, citing “somewhat higher spot commodity prices from an improving cyclical backdrop, significant carry returns from structural tailwinds” and “hedging value against negative supply shocks”. Additionally, Goldman sees oil gaining on the back of OPEC’s output cuts.
Energy and gold serve as long-standing favorites against a backdrop of geopolitical risk. The investment bank referred to demand as having “ongoing resilience” enabling it to bolster oil prices, Reuters reported.
While Goldman Sachs sees interest rate hikes by the Federal Reserve coming to an end, citing core disinflation, with rate reductions coming only in the fourth-quarter of next year, Morgan Stanley disagrees, forecasting that the Fed will make deep interest rate cuts over the next two years as inflation cools.
Morgan Stanley expects the first rate cut in June next year, followed by a second in September of 25 basis points, predicting a rate of 2.375% by the end of 2025. Goldman, by contrast, sees rates at 3.5%-3.75% by mid-2026, according to Bloomberg. Despite its sunny outlook for energy, Goldman lowered its Brent crude forecast on expectations of lower demand and higher supply from Brazil, Venezuela and Nigeria in the fourth-quarter of this year. The investment bank lowered its Brent crude forecast from $98 to $92 for 2024.
By Charles Kennedy for Oilprice.com