Goldman Sachs thinks 2021 will be a bull market for commodities, with the dollar weakening and inflation. Goldman Sachs emphasized that they expect base metals and agricultural products to increase more than oil in the short term, and action should be taken before prices start to climb.
Goldman Sachs expects an upward trend in non-energy commodities such as agriculture and metals, citing the possible contraction in supply due to adverse weather conditions and increased demand from China. Economic recovery moves in China have pushed metal demand to the highest level since 2011.
According to the news published by CNBC; Considering the early retreat of inventories, analysts led by commodity research chief Jeffrey Currie suggested that a structural bull market could emerge for commodities. Analysts think that if there is no drop in demand, the market will move in this direction. It was also underlined that with the decrease in the capital allocated for oil drilling and metals, production in countries not belonging to the Organization of Petroleum Exporting Countries (OPEC) decreased.
Inflation fears and dollar weakness drive commodities
Markets are more concerned than ever that inflation will rise as a result of record financial spending and continued low interest rates, which stimulus packages are the catalyst. Investment bank Goldman Sachs also stated that it will invest more in commodities to offset the risk, taking this into account.
Stating that investors remain indifferent to inflation, bank analysts stated that they think that the increasing social needs and ongoing political risks are increasing with an inflationist bias. In their report, analysts said, “Accordingly, we expect an increase in investment in commodities to avoid inflation.”
The most important argument behind the fact that the weakening of the dollar may lead investors to commodities is that these commodities are bought and sold in dollars. A weaker dollar means more costly commodities. According to Refinitiv data, the US dollar index lost about 3.07% as of last Monday. More and more economists believe that the dollar’s depreciation will continue. Stephen Roach, former president of Morgan Stanley Asia, claimed that the dollar will melt 35% by the end of 2021.
Gold against inflation
Goldman Sachs underlines that gold is an important protection against inflation. While the gold price has increased by 26% this year, Goldman expects this precious metal to climb to an average of $ 2,300 on an ounce basis in 2021. Gold is currently being traded on an ounce basis at $ 906.
Although Bitcoin is not considered a complete commodity, it is shown by some market experts as the closest in terms of its features. In the economic process in 2020, Bitcoin was shown as an important protection for inflation, at least as much as gold. So much so that many corporate companies, such as the billion-dollar company MicroStrategy listed on Nasdaq, have chosen to invest millions of dollars in Bitcoin for many reasons, including avoiding inflation.