Goldman Sachs (GS Stock) see more commodity gains in 2022

Giles Coghlan LLB, Lth, MA Financial Source

This was an interesting research note from Goldman Sachs (GS) on the case for further commodity gains this year. Below are some points GS make for further upside in the commodity space.

1. Many forward balances are showing draws in many commodities

Wheat, copper, European gas, aluminium and Nickel are all seeing continued draws in balances. In other words, the supply is not in place to meet the demand. If the world gets moving again and the pandemic moves firmly into an endemic stage this could quickly become worse as demand picks up again.

2. Capital investment into commodities has been hit hard

GS say that the latest risks from Omicron and China have slowed capital flows into commodity investments. They project scarcity pricing to continue and see 16.2% returns for commodities this year. Added to this is the fact that supply uncertainty remains extremely high. On top of this is the fact that a green pivot has made investors reluctant to invest in fossil fuels and investment in the oil industry is low.

3. Commodities can make a good hedge against valuation risk

Equities are highly valued and look very vulnerable to rising rates. With 4 priced in this year (from 0 last) commodities can offer a hedge against falling valuations.

They also note that commodities tend to perform besting the hiking phase of the rates cycle as outlined in this useful chart below.

Learn more about HYCM

Author

Giles Coghlan LLB, Lth, MA

Financial Source

Giles is the chief market analyst for Financial Source. His goal is to help you find simple, high-conviction fundamental trade opportunities. He has regular media presentations being featured in National and International Press.

EUR/USD flirts with daily highs, retargets 1.1900

EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.

GBP/USD remains well bid around 1.3650

GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.

Gold clings to gains just above $5,000/oz

Gold is reclaiming part of the ground lost on Wednesday’s marked decline, as bargain-hunters keep piling up and lifting prices past the key $5,000 per troy ounce. The precious metal’s move higher is also underpinned by the slight pullback in the US Dollar and declining US Treasury yields across the curve.

Crypto Today: Bitcoin, Ethereum, XRP in choppy price action, weighed down by falling institutional interest

Bitcoin's upside remains largely constrained amid weak technicals and declining institutional interest. Ethereum trades sideways above $1,900 support with the upside capped below $2,000 amid ETF outflows.

Week ahead – Data blitz, Fed Minutes and RBNZ decision in the spotlight

US GDP and PCE inflation are main highlights, plus the Fed minutes. UK and Japan have busy calendars too with focus on CPI. Flash PMIs for February will also be doing the rounds. RBNZ meets, is unlikely to follow RBA’s hawkish path.

Ripple Price Forecast: XRP potential bottom could be in sight

Ripple edges up above the intraday low of $1.35 at the time of writing on Friday amid mixed price actions across the crypto market. The remittance token failed to hold support at $1.40 the previous day, reflecting risk-off sentiment amid a decline in retail and institutional sentiment.