Goldman Sachs is urging investors to invest in commodities and avoid a potential recession. The firm’s analysts see commodities as “the best asset class to own during a late-cycle phase where demand remains above supply.” Meanwhile, “equities could suffer as inflation stays elevated and the Fed is more likely to surprise on the hawkish side,” Goldman noted.
Goldman Sachs’ Recommendation: Buy Commodities Now
Goldman Sachs, a global investment bank, has advised investors to buy commodities. In a note titled “Buy commodities now, worry about the recession later,” published Monday, Goldman wrote: “Our economists view the risk of a recession outside Europe in the next 12 months as relatively low.” The firm’s analysts, including Sabine Schels, Jeffrey Currie, and Damien Courvalin, explained:
We believe that oil is the last commodity in an age of energy scarcity, and the pullback within the whole oil complex offers an attractive point of entry for long-only investments.
In the U.S., Federal Reserve Chairman Jerome Powell said last week: “We are taking forceful and rapid steps to moderate demand so that it comes into better alignment with supply, and to keep inflation expectations anchored. We will keep at it until we are confident the job is done.”
Isabel Schnabel, a member of the European Central Bank’s board, noted that inflation is threatening to undermine public trust in central banks all over the globe. She said that they must act now, regardless of whether it causes recession.
“From a cross-asset perspective, equities could suffer as inflation stays elevated and the Fed is more likely to surprise on the hawkish side,” the Goldman analysts further noted, elaborating:
Commodities on the other side are the best asset type to hold during a phase of late-cycle demand that is above supply.
This late-cycle phase is typically marked by an increase in inflationary pressures, and an economy moving past its maximum rate of economic growth.
Goldman Sachs also cautioned: “We do acknowledge that the macro landscape remains challenging and the U.S. dollar could rise further short term.”
Currie is the head of commodities research at Goldman Sachs and believes recessions are part of a long commodity supercycle. He told Reuters in November last year: “We expect a structural bull market in commodities, very similar to what we saw in the 2000s or the 1970s.”
CNBC was informed by the analyst in June that we were at the start of a commodities boom. “This is the first innings of a commodities supercycle — It’s not just oil and gas, it’s metals, mining, it’s agriculture — because the sector has suffered from a decade-plus of underinvestment,” he opined.
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