Goldman Sees Gains For Commodities

By Aaron Levitt | November 18, 2011 AAA

As alternative assets have moved forward into the mainstream, investors have embraced commodities as the portfolio must-have. Rising global populations have added increased pressure on the planet's natural resources. To that end, funds like the SPDR S&P Global Natural Resources (NYSE:GNR) have exploded in assets under management and popularity, as investors have sought to capitalize on asset classes appeal. With so many investors now holding commodities, paying attention to global growth forecasts becomes even more important. Goldman Sachs (NYSE:GS) recently put forth its 12-month predictions for the commodities markets. Investors in the sector may want to take notice of the bank's predictions.

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Paring Back
For investors interested in the commodities markets, paying attention to Goldman Sachs' recommendations could mean big portfolio gains. Overall, the investment bank has been pretty successful at correctly predicting the trends and outcomes of these assets. Most recently, Goldman correctly predicted the fall in oil and copper prices in April, and subsequent rebound, before they happened. While some critics will argue that Goldman's size and trading prowess allows it to influence these markets and control pricing, hitching your portfolio up to the banks predictions may not be such a bad thing.

For the next 12 months, the venerable investment bank estimates that its commodity index, The S&P GSCI Enhanced Commodity Index, will produce gains of about 15%. This is nearly 5% lower than the bank's previous forecast for hard assets. Despite the debt problems facing Europe, total global economic growth should help buoy the commodities markets and result in higher prices. The bank also highlighted the Federal Reserve's recent signals of more stimulus, as well as the continued growth from emerging markets, as catalysts for the surge. (For more on the Federal Reserve, see How The Federal Reserve Was Formed.)

However, while the commodities average will rise by 15% during the next year, there are plenty of individual natural resource sectors and commodities that will see bigger gains. The two biggest winners will be energy and industrial metals, which the bank estimates will climb 19 and 26%, respectively. In addition, both precious metals and livestock will see healthy gains and copper prices will rise 22%. The real shocking news from the report is that Goldman estimates that agriculture prices will fall by about 5%, during 2012.

Playing Goldman's Forecast
With Goldman believing that "key commodity prices are too low relative to current fundamental balances," investors may want to consider taking the investment banks advice and continue to "overweight" commodities. Both the iShares S&P GSCI Commodity-Indexed Trust (NYSE:GSG) and iPath S&P GSCI Total Return Index ETN (NYSE:GSP) track Goldman's proprietary index mentioned above and could be used as broad proxies. However, there are plenty of ways to play the winners from the report.

With industrial metals set to surge on the back of continued emerging market demand, the PowerShares DB Base Metals (NYSE:DBB) could be great way to play that growth. The ETF tracks equal-weighted future contracts on copper, zinc and aluminum, and currently sits about $7 below its 52-week high. In addition, miners such as Southern Copper (Nasdaq:SCCO) and Alcoa (NYSE:AA) are trading for peanuts.

Energy will be another winner during 2012, according to Goldman. For those interested in oil and gas equities, the Vanguard Energy ETF (NYSE:VDE) offers one of the cheapest ways to access the sector. With an expense ratio of just 0.24%, the fund offers exposure to 169 energy heavy weights, including Occidental Petroleum (NYSE:OXY). The iPath DJ-UBS Energy ETN (NYSE:JJE) gives portfolios four different energy-related futures contracts to track.

Finally, Goldman expects gold to rise to $1,930 per ounce, within 12 months; that's about $150 higher than current prices. While there are countless new ways to play gold, the SPDR Gold Shares (NYSE:GLD) is still the monster in the sector and should continue to see gains. (For more on Gold ETF Investing, See Alternatives For Gold Exposure.)

The Bottom Line
As more investors have embraced commodities, it becomes paramount to monitor global forecasts. Goldman Sachs' recent predictions highlight the growth in the sector. The previous ways to play the report, along with Direxion Daily Agribusiness Bear 3X (Nasdaq:COWS) make ideal selections.

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At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

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