Goldman Tells Investors: No Need to Fear Commodities Anymore

(Bloomberg) -- It's safe to invest in commodities again, Goldman Sachs Group Inc. is assuring investors.

Despite a decade of lackluster returns and bubbling trade tensions, the “strategic case" for buying commodities from crude to copper has “rarely been stronger," analysts for the New York-based bank said in a note Tuesday. Growing global demand compounded by shrinking inventories and a years-long underinvestment in new supplies is clearing the way for sustained high prices, the analysts wrote.

While the bank sees Brent crude prices peaking at $82.50 a barrel in July and copper at $8,000 a ton in December, there's still “significant upside" to its forecasts in both cases for 2019, analysts led by Jeffrey Currie and Damien Courvalin wrote in the report.

“Commodities are the best performing asset class of 2018," the analysts said. “The weak returns of the past decade are behind us." Commodities markets this year have returned 7 percent, according to the report, compared with a 1 percent dip for equities.

Investors have been skeptical, the analysts noted, burned by a decade in which “commodity indices have struggled to post consistent returns while commodity producers have been extremely poor custodians of wealth."

U.S. oil explorers alone are responsible for “destroying 23 cents on every dollar invested over the past 10 years." Now, though, pipeline shortages should constrain future production growth from the Permian shale basin in the U.S., leaving OPEC and Russia with a “longer runway" to continue their price-boosting supply cuts.

It's time to embrace the rally, the analysts wrote. Rising interest rates should make the case stronger, as they depress returns for other assets and increase the need to diversify investments, the analysts said.

To contact the reporter on this story: Alex Nussbaum in New York at anussbaum1@bloomberg.net.

To contact the editors responsible for this story: Reg Gale at rgale5@bloomberg.net, Steven Frank

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