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Goldman Sees Gold to Corn Losses After Bear Markets: Commodities

January 30, 2014
unloading corn harvest 2011
Last year’s record corn harvest of 13.925 billion bushels in the U.S., the world’s largest grower and exporter, was 48 percent bigger than the harvest 15 years earlier, government data show.  

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Jan. 30 (Bloomberg) -- Banks led by Goldman Sachs Group Inc. and Citigroup Inc. say commodities are heading for losses in 2014 as rising supplies and slowing demand compound slumps that led to bear markets last year in gold, copper and corn.

Open interest measuring holdings across the 24 commodities tracked by the Standard & Poor’s GSCI Spot Index fell for three straight quarters through December, the longest slump since the global recession in 2008. The super cycle that led commodities to almost quadruple since 2001 is reversing, with prices set to drop 3 percent in 12 months, Goldman said. The asset class will be a "wallflower" compared with equities, Citigroup said.

Raw materials from copper and corn to sugar and coffee will be in surplus this year after a decade-long bull market spurred producers to build new mines, drill more wells and expand planting of crops. Investors pulled a record $43.3 billion last year from commodity funds tracked by EPFR Global, and hedge funds cut bullish bets across 18 U.S. futures by 53 percent from an all-time high in September 2010.

"Supply growth is still formidable across most commodities," said Rob Haworth, a Seattle-based senior investment strategist at U.S. Bank Wealth Management, which oversees $115 billion. "It will take some time for actual demand trends to start to overwhelm that increasing supply."

The S&P GSCI dropped 0.8 percent this month and 2.2 percent last year, while the MSCI All-Country World Index of equities slid 3.5 percent, after surging 20 percent in 2013. The Bloomberg Dollar Index, a gauge against 10 major trading partners, has climbed 1.1 percent since the end of December. The Bloomberg U.S. Treasury Bond Index advanced 1.6 percent.


Lagging Equities


The S&P GSCI Enhanced Commodity Index, which measures investor returns after some rolling positions are taken into account, will drop 3 percent in the next 12 months, Goldman said in a Jan. 12 report. Precious metals will lose 15 percent, while agriculture will decline 11 percent, the bank said. Industrial metals will decrease 5 percent, livestock 3 percent, and energy will fall 1 percent, Jeffrey Currie, the bank’s head of commodities research, said in the report.

"We are still at below-trend GDP growth, and typically in this environment you see weak commodity returns and low volatility," Currie said by e-mail Jan. 22. "The expectations are the U.S. grows near trend, but Europe won’t, and the emerging markets won’t. If the growth was above trend everywhere, we’d be jumping into commodities."

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