On Oct. 25, Goldman Sachs said commodities were a key asset class to hold during the current market volatility, but one commodity in particular offered a “welcome opportunity.”

That outlook is at odds with the commodities industry’s poor performance this year.
Commodities necessary for diversification are oil and agriculture, Goldman Sachs said in a report this week. “While the tactical outlook for other asset classes remains cautious, oil and the sporadic agriculture sector present a good opportunity for investors to diversify their portfolios,” Goldman wrote.
Commodities are expected to return 12.8% in the next three months, 21.1% in the next six months and 34.9% in the next 12 months, the report said. This refers to the oil-heavy S&P GSCI Commodity Index.
The energy sector is expected to return 46.7% over the next 12 months, while industrial and precious metals return 29% and 23.8%, respectively.
Commodities have underperformed so far this year amid a sharp tightening of global monetary policy and growing risks of a global recession.
“Even if the macro outlook remains murky, commodity markets, especially oil, will follow their own rhythm, propelled by micro fundamentals and OPEC+ production cuts, low inventories and low spare capacity,” Goldman said.
Oil prices have fallen more than 30% since hitting highs in March, while base metal prices have also slumped due to Asia’s coronavirus policies and a slowing global economy. But the bank warned that shorting metals is a risky business despite the bleak economic outlook.
“Upside risks from a possible ban on the London Metal Exchange (LME), coupled with tighter micro fundamentals, make shorting metals risky,” the report said.
Regarding precious metals, Goldman Sachs has both bullish and bearish views. The bank expects gold prices to rise to $2,250 an ounce if the U.S. economy experiences a severe recession, and fall to $1,500 an ounce if the Fed’s monetary policy remains aggressively tightened into next year.
Gold prices are down 9.4% so far this year, with spot gold recently trading around $1,653.
Regarding silver and platinum, Goldman Sachs commented that the global economic outlook needs to improve before these two metals can see a solid rebound. “Silver and platinum have underperformed gold this year, and we believe the global industrial cycle needs to improve in order for them to reverse this weak performance,” the report said.
Spot Gold Daily Chart
At 10:32 on October 26, Beijing time, spot gold was quoted at $1,654.42 per ounce