Goldman Gets Bullish On Commodities Again

By Sarah Kent

Prices across commodities markets have slumped over the past two months, but Goldman Sachs Monday predicted the recent sell-off could be drawing to an end.

"Although the macroeconomic backdrop still remains uncertain, particularly in Europe, we believe that the price risks are now shifting more to the upside and are therefore moving back to a near-term overweight recommendation [on commodities]," the bank said.

The bank outlined a base case in which the global economy grows 3.3% this year, based on the assumption that European policy makers would be able to contain the region's debt crisis.

"Given continuing disappointments in the supply growth of oil and some of the key base metals, this moderate pace of world economic growth is sufficient to tighten markets during the second half of this year, creating the need for higher prices to balance supply and demand," Goldman said.

It added that the massive financial deleveraging seen across commodities in the last two months suggested the market may have reached its bottom.

"While further sentiment deterioration can still create additional financial liquidation, we believe that the financial participation in many markets is now below what is consistent with the underlying market fundamentals," it said.

However, the bank's upbeat stance on commodities over the next few months did not stop it from downgrading its price forecast for copper, aluminum, nickel and zinc as a result of risks posed by the euro zone debt crisis and a stronger dollar.

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