Investment Banks Turn Bullish on Commodities

on Dec 7, 2012
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**Commodities Prices Stabilising, Says Goldman Sachs**

US-based global investment bank Goldman Sachs (NYSE:GS), which coined the term “commodities super-cycle” for the surge in raw materials prices in the past decade, has said the investment cycle has shifted to a “more stable long-term price environment,” The Financial Times reported on 5 December 2012.
Over the past decade, commodities markets have seen a rare period of rapidly rising prices, interrupted briefly by the global financial crisis of 2008-09. The prolonged increase in raw materials prices has been supported by the economic growth of China and other emerging markets on the demand side and years of underinvestment during the 1980s and 1990s on the supply side. Now, however, Goldman Sachs, one of Wall Street’s leading commodity traders and market analysts, sees raw materials entering a new phase. The investment bank stated: “With commodity supply constraints easing, Chinese growth slowing and producer company returns normalising, it is tempting to call an end of the commodity super-cycle.” Yet Goldman added that current developments were “simply the next phase of a commodity investment cycle that commenced in the late 1990s” and that “it should be viewed more as a ‘renaissance’”, than as an end of the commodities super-cycle.

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**Goldman Sees Copper Up and Revises Gold Prediction Down for Next Year**
According to Goldman Sachs’ latest forecast in regards to commodities prices, copper will peak at $9,000 a tonne next year, boosted by a string of Chinese construction completions, but the average price of the metal during 2012 will be $7,000 a tonne. On the other hand, the bank lowered its six-month gold price forecast to $1,805 from $1,840 as it expects “fewer catalysts for sharp moves to the upside” while the “downside risks will increase heading into 2013” due to the improving US growth outlook.

**Morgan Stanley Views Calls for End of Super-Cycle as “Too Simplistic”**
!m[Goldman Sachs Tempted to Call End of Commodities Super-Cycle, While Peer Morgan Stanley Backs Its Best Picks](/uploads/story/984/thumbs/pic1_inline.png)While the current commodities market development have brought many analysts to call the end of the commodities super-cycle, investment bank Morgan Stanley (NYSE:MS) joined its peer Goldman Sachs in stating that the super-cycle is not over yet, Bloomberg reported on 6 December 2012. “We view this as too simplistic. Commodities are cyclical but the elasticity of supply and demand, as well as the length of the cycle, vary significantly,” Morgan Stanley said.

**Morgan Stanley’s Best Picks in 2013**
Listing its commodities top picks for 2013, Morgan Stanley also said that gold, silver and corn will outperform other raw materials next year as a weaker dollar and rising investor demand bolster precious metals while supply curbs aid grains.
Morgan Stanley forecasts greater upwards movement of the precious metal than Goldman, which, according to the bank, is poised to gain on low real interest rates, buying by central banks and geopolitical uncertainty. Gold may average $1,853 an ounce in 2013, while silver may be $35 an ounce, Morgan Stanley said. Analysts at the bank also said that corn and soybeans should benefit from harvest delays in South America. Morgan Stanley remains bearish on aluminium, sugar, nickel and uranium as supplies are set to outpace demand.

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