Goldman Sachs says it’s the beginning of a structural bull market in commodities

It’s all one-way for commodities, Goldman Sachs analysts say in a message to customers.

Analysts, led by Jeffrey Currie, said the start of a new structural bull market will begin with every structural deficit except cocoa and zinc.

“Lockdowns have created a wedge between the consumption of services and goods, creating additional demand from both households and governments looking to stimulate activity while minimizing the spread of viruses,” they said. They use the acronym REV to describe what’s going on – redistributive policies, environmental policies, and versatility in supply chain initiatives.

Goldman analysts said the bull market is driven by demand, not supply. They said there is a change in the way governments interact with the economy, citing the Lame Duck Congress’ passing of $ 950 billion in incentives, the European Union’s green initiatives, the acceleration of a Chinese replenishment cycle and progress on the $ 1.9 trillion coronavirus relief plan from the Biden administration.

Both China and the US have sought to expedite cuts in key supply chains, with China trying to cap exports of rare earths while the White House ordered a review of vulnerabilities in the US supply chain after automakers just left had few microchips, added the analysts.

“We see that supply in all of these markets is increasing demand, but not catching up, which means that even for oil, demand is easing inflationary pressures. In addition, commodities are the crucial link between growing demand, a weaker dollar and inflation, which is why they have been the best hedge against inflation, statistically, “they said.

Commodities act as an inflation hedge, say Goldman analysts. You compare the assets with the CPI.

Until Tuesday, crude oil futures
CL.1, -1.57%
increased 25% in 2021, copper
HG00, + 2.32%
Futures are up 17% and natural gas is up 17%
NG00, + 2.38%
won 9%. Agricultural commodities including wheat
W00, + 2.54%
have also gained ground.

GC00, + 0.62%
is the exception to lose 9%. The WSJ Dollar Index
BUXX, -0.23%
won 1%.

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