Goldman Sachs’ Currie – this is the beginning of a commodities super cycle

By: Faith Maina
Faith Maina
Faith strives to break down complex developments so investors can make better informed decisions. When Faith is not immersed… read more.
on Jan 13, 2022
  • Goldman Sachs maintains that this is the beginning of a commodities super cycle.
  • The fundamental and financial setups support a bullish market for the asset class.
  • Copper will likely be one of the key beneficiaries of the expected super cycle.

Commodities are set to continue on the extensive uptrend observed in 2021. According to Goldman Sachs, it is the beginning of a super cycle for the asset class.

Commodity super cycle

In 2021, various commodities recorded significant gains amid the ongoing economic recovery from the coronavirus pandemic.

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In particular, copper price rose by 27.18%; hitting an all-time high in May at $4.89 per pound. In the same year, Coffee C futures contract, the world’s benchmark for Arabica coffee, surged to a 10-year high in early December. Other commodities like crude oil also recorded substantial gains during this period.

Interestingly, Goldman Sachs’ Global Head of Commodity Research, Jeff Currie is of the opinion that this is just the beginning of the commodity super cycle. During an interview on CNBC Television on Monday, the analyst stated, “The fundamental setup in this markets is incredibly strong right now…the dislocations across oil, copper, and the rest of the commodity complex are at record levels.”

The investment bank first mentioned about the likelihood of a commodity supercycle in October 2020. Curries notes that since then, the environment has been more bullish than they initially anticipated. On the one hand, elasticity of supply is rather low. At the same time, demand for various commodities including crude oil and copper shows no signs of slowing down in the foreseeable future. These dynamics are set to maintain the commodities’ bullish outlook.  

Notably, crude oil is one of the commodities that has extended its rallying into the new year. Since the beginning of December, the benchmark for global oil – Brent futures – have risen by about 27.60%. As stated by the analyst, it is currently at a deficit of 2 million bpd; which equates to 2% of the market missing. Besides, inventories are 5% below the five-year average.

In addition to the fundamentals favoring the commodity markets, the financial setup has also created a favorable environment for the expected rallying. To begin with, investor participation in the space is relatively low.

Besides, in the context of financial markets, Goldman Sachs argues that the sector is the best “place to hide” following the Fed’s hawkish pivot. In fact, Currie has indicated that it is not only ideal from “a pure return basis but also from a hedgy basis”.

Currie has noted that copper price will likely be the biggest beneficiary of the super cycle. This is founded on the argument that numerous countries across the globe are working on implementing decarbonization policies. Subsequently, the steady demand for the red metal is expected to maintain its prices on an uptrend.  

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