According to the latest report by Bloomberg, Goldman Sachs is advising investors to purchase commodities as the time comes closer to an escalation in the current trade war.
Goldman Sachs has dismissed the idea that the trade war between the US and China will be a serious threat to raw materials, stating that most of the commodities are, in fact, unlikely to be really impacted. Thus, considering the recent declines in the prices of commodities, now is a perfect time to buy them.
The Wall Street bank stated that according to a recent report, the economic impact of tariffs levied by the US and China, which includes the tariffs due to be imposed by the US on China on July 6, is not significant. The firm forecast that there would be 10% return on commodities over the next one year with the expectation that the dollar will drop in value and the price of crude oil will continue to climb.
According to Goldman Sachs analysts, included Jeffrey Currie, the impact of the current trade war will be minuscule, except for the soybean market, where a complete rerouting of supplies will just not be possible.
The last few months, the price of raw materials has been negatively impacted by the growing concern that global investors have had with regard to the potential consequences of the trade war between the two biggest economies of the world. The Bloomberg Commodity Index saw its biggest drop in June since 2016. The biggest losses were seen in soybeans and copper.
The Energy markets are expected to remain in focus as OPEC members as well as Russia have agreed to increase oil production after a huge spike in the prices of crude oil.
Goldman Sachs stated that while the commodities sector is still the best performing for the year so far, June saw a big setback which was caused by a weakness in demand from emerging markets, the cessation of production cuts in OPEC and its partner countries’ oil output as well as the ever escalating trade war.
The bank also stated that these concerns are over-inflated and that even the soybean crop, which is the most vulnerable in this trade war, is now a commodity that has been given a “buy”.
At a regular press briefing in Beijing, Gao Feng, a spokesman for the Chinese Commerce Ministry, asserted that their country was not going to be intimidated by threats or blackmail and that China would push back if the US went ahead with its plan to impose further tariffs on Chinese imports.
Despite the increasing tension, the Wall Street lender has been consistently upbeat about its outlook with regard to the price of raw materials in the last few months, averring that there will be late stage economic cycle benefits. The bank in fact said back in February that this was the most bullish it had been on commodities since the sector’s super-cycle ended in 2008.
The bank stated that China’s concern regarding credit availability is what has driven prices down in metals, a phenomenon made worse by the current trade war. Now, however, the price of metals should see an upswing with a change of policy in China.
Other banks, however, are not so optimistic about the situation. Morgan Stanley, for example, has raised a red flag with regard to the risks for the erosion in demand from the trade war as well as any slow-down in China’s economy.
Australia, the top iron ore shipper of the world, has also sounded off a warning. The country’s Department of Industry, Innovation & Science said that this deepening trade war could hurt global economies.