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In its latest client note, analysts at the Wall Street banking giant, Goldman Sachs, argued against recommending long positions in commodities, with the exception of metals, as the recent rally has gotten ahead of fundamentals.

Key quotes

“Sees downside risks in agricultural and energy markets, citing the recent strength as surprising given the massive inventory overhangs and depressed demand.

Without a shift in balances, any rally in physical commodity markets is unsustainable, adding the climb was “too much, too fast in oil, but not metals.

Combined with COVID-19-related supply disruptions and a lack of scrap availability due to the lockdown, metals markets are left with relatively little inventory.

Forecasts 3-month returns of 0.8% for industrial metals, -9.5% for energy complex, -8.6% for precious metals and -7.4% for agriculture.

On a 3, 6 and 12-month horizon, the bank sees returns of -7.5%, 2.7% and 13.1% on commodities over the S&P GSCI index.

The year-to-date return on commodities is seen at -34.2%, compared with 17.4% in 2019.

Expect gold to reach $1,800 per ounce on a 12-month basis and the tail risk of above-target inflation as a potential driver for prices to climb beyond $2,000.”

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