Tags: European | union | debt | commodities

Goldman: EU Debt Woes Raising Risk to Commodities

Thursday, 15 Sep 2011 10:55 AM

Debt problems in the European Union are raising the risk to a bullish view for commodities, but a deeper recessionary event would be required to derail the outlook, Goldman Sachs analysts said on Thursday.

Goldman maintained its 12-month price forecast for oil, gold and copper, predicting strong Chinese demand and tight global supplies would offset deepening fears of an economic slowdown in the developed world.

"The risks relative to our views have increased but we maintain that we really need to see more of a global recessionary environment or global financial event to meaningfully derail the constructive commodity views," said Allison Nathan, managing director for commodities research at Goldman Sachs.

Equity markets have been hammered since late July on the twin fears of renewed recession in the United States and the potential for Europe's sovereign debt woes to trigger a wider crisis in the financial system.

Commodities, however, have remained relatively strong in the gloomy economic environment.

"Ten to 15 years ago if we had the sort of macro signals that we got today, with the exception of gold, we wouldn't want to be near the commodity space. Yet, commodity prices are holding up extremely well," said Malcolm Southwood, resources strategist for Goldman.

Bullish Outlook

Goldman, one of the biggest commodities traders among the investment banks, forecasts Brent oil to climb to $130 per barrel within the next year. Brent is currently trading at about $112 per barrel.

The firm's 12-month forecast also predicts spot gold prices at $1,860 an ounce, up slightly from Thursday's $1,811. LME copper is seen surging to $11,000 per metric ton from $8,655 currently.

"By 2013, we do actually have the copper markets back in a gentle surplus, so we will see annual average prices peak next year and then come off gently," Southwood said.

Chinese demand for commodities will remain the key driver for markets next year as domestic inventories steadily decline.

"If we are looking at a global recession, China will not be insulated and China will slowdown," said Julian Zhu, a Goldman analyst in Hong Kong.

"But the Chinese government is very flexible. If there is a need, they can reverse their (monetary) policy very quickly ... which would be very supportive for commodities demand."

The Reuters-Jefferies CRB index, a global benchmark for commodities that has edged up 1.6 percent in the first six months of this year, is expected to drop about 8 percent by the end of 2011, Reuters market analyst Wang Tao said.

© 2015 Thomson/Reuters. All rights reserved.

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