Silver spot price: Commodities Super Cycle over, says Goldman Sachs

Downwards prior period revisions take shine off US Retail Sales

Silver spot price: Commodities Super Cycle over, says Goldman Sachs, Tuesday 14 January:

The “super cycle” that sent commodity prices climbing nearly four-fold over a 10-year period is reversing and raw materials are now in a structural bear market, according to Goldman Sachs.

In a report uploaded on Sunday last, the bank writes that expansion of US shale oil production will suppress energy prices, bolstering economic growth and leading to more QE tapering. As a result, emerging market currencies will depreciate further, encouraging growth in raw materials production in those countries.

Jeffrey Currie, head of commodities research at Goldman Sachs, believes that “the rotation away from emerging markets and towards developed market demand as well as the supply increase, particularly the US shale revolution, are creating a new commodity cycle”, which “eventually suggests a structural bear market in commodities”, though Goldman Sachs believe that to be “still in the distant future”.

Currie told a GS investor conference in London yesterday: “I can’t tell you about one commodity out there that has a bullish supply-side story … A decade of higher commodity prices generated a supply response.”

Higher prices prompted miners and farmers to boost production right at the time when China’s economic growth was slowing, leading to the first annualised decline in the S&P Enhanced Commodity Index in five years. Spot silver ended 2013 down nearly 37 percent, its worst calendar year since 1981, with investors losing faith in precious metals as a store of value amidst growing signs of an improving global economy.

Goldman Sachs is picking the S&P Enhanced Commodity Index to contract three percent this year, with precious metals set to fall an aggregate 15 percent on top of last year’s slides.

The spot price of silver has been vacillating between gains and losses today, since release of a mixed US Retail Sales report for December.

Headline retail sales for last month checked in at 0.2 percent m/m, beating the market consensus for a gain of just 0.1 percent. However, November’s strong rise of 0.7 percent was revised down to just 0.4 percent.

Core sales for December showed growth of 0.7 percent m/m, well above the expected increase of 0.4 percent, but again the shine came off with a downgrade of the prior month’s reading, from 0.4 percent to 0.1 percent.

“November’s strong figures looked less so after revisions that took a 0.7 percent gain previously reported down to 0.4 percent, and ex-autos from 0.4 percent to only 0.1 percent,” observed analysts at CIBC World Markets“. In their view: “Markets will likely see limited reaction given that revisions offset some of the upside surprise in the December figures.”

Precious metal traders will also be dialling into the utterances of Philadelphia Fed president Charles Plosser and his Dallas counterpart Richard Fisher, today at 17.45 UTC and at 18.20 UTC respectively. Both central bankers are voting members of the Federal Open Market Committee.

Right now, spot silver is trading at around 20.445, up 0.17 percent intraday.

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