The firm’s analysts see commodities as “the best asset class to own during a late-cycle phase when demand remains higher than supply“. Meanwhile, “stocks could suffer as inflation remains high and the Fed is more likely to surprise on the hawkish side“, Goldman noted.
Goldman Sachs recommendation: buy commodities now
Investment bank Goldman Sachs has recommended that investors buy commodities. In a note titled “Buy commodities now, worry about recession later“, published Monday, Goldman writes: “Our economists view the risk of a recession outside of Europe over the next 12 months as relatively low“. The firm’s analysts, including Sabine Schels, Jeffrey Currie and Damien Courvalin, explained:
With oil being the commodity of last resort in an era of severe energy shortages, we believe the pullback in the overall oil complex is an attractive entry point for long-term investments.
In the United States, Federal Reserve Chairman Jerome Powell said last week, “We are taking aggressive and timely action to moderate demand to better align it with supply, and to keep inflation expectations anchored. We will continue our efforts until we are satisfied that the job is done.“
In addition, Isabel Schnabel, a member of the European Central Bank’s (ECB) board of directors, noted on Saturday that central banks around the world are in danger of losing public confidence and must now act forcefully to fight inflation, even if it drags their economies into a recession.
“From an inter-asset perspective, stocks could suffer as inflation remains high and the Fed is more likely to surprise on the hawkish side“, Goldman analysts further noted, noting:
Commodities, on the other hand, are the best asset class to hold in an end-of-cycle phase where demand remains greater than supply.
The late-cycle phase typically involves rising inflationary pressures and an economy that is exceeding the maximum rate of economic growth.
Goldman Sachs also warned, “We recognize that the macroeconomic landscape remains challenging and that the U.S. dollar could rise further in the near term.“
Jeffrey Currie, who heads commodities research at Goldman Sachs, believes that recessions are a natural part of an extended commodities supercycle. He told Reuters in November of last year, “We expect a structural bull market in commodities, very similar to what we saw in the 2000s or 1970s.”
The analyst told CNBC in June that we are at the beginning of a commodity supercycle. “It’s the early stages of a commodities supercycle – It’s not just oil and gas, it’s metals, mining, agriculture – because the sector has suffered from more than a decade of underinvestment“, he commented.