Goldman Sachs advises investors to turn to long-term investments in commodities such as oil and gas, considering the current geopolitical conditions. This recommendation comes especially in light of increased maritime attacks and damage to energy infrastructure, which could significantly raise energy prices.
High Returns in the Commodity Market
This year, the commodity market has achieved a 36% return. Goldman Sachs, pointing to this situation, recommends a positive allocation to commodities both tactically and structurally. The bank predicts that prices will gradually adjust with supply adjustments in the Middle East. However, a cold winter could sharply increase natural gas prices in Europe.
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Market Sensitivity to Energy Prices
Since the onset of the war in Iran, stock prices, particularly bond prices, have become unusually sensitive to energy prices. Goldman Sachs attributes this to the sustainable growth of global GDP and high inflation over five years, which has forced central banks to respond to the inflationary effects of high energy prices.
The wars in Iran and Ukraine, the high likelihood of the "El Niño" phenomenon, and potential food export restrictions have created upward risks for agricultural prices. Meanwhile, many energy prices in cash markets contain high premiums due to significant risks. Goldman Sachs is looking for targeted hedges in energy that offer asymmetric upside potential and attractive valuations.
Structural Diversification and Supply Challenges
Commodities also act as a tool for structural diversification and can provide insurance against supply disruptions. With increasing supply concentration, competition between the United States and China in artificial intelligence, and geopolitical fragmentation, these risks have heightened. Commodities are under upward price pressure, where increasing demand is faced with persistent supply constraints, especially in copper, gold, and some power markets.
Mining supply is limited against demand from electrification, data centers, energy security, and semi-strategic storage and artificial intelligence. Meanwhile, demand from the diversification of central banks is increasing, while annual mining supply remains small compared to above-ground inventories.
In selective power markets, such as PJM in the United States, concentrated demand from data centers faces electricity supply constraints. This situation seems to create serious challenges for energy supply in the near future.
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