As overall global growth continues to be flat, a variety of market pundits and analysts have begun to revisit their earlier forecasts. For retail investors, these predictions can provide valuable insight to how the macroeconomic picture is evolving and ultimately lead to portfolio gains. Venerable investment bank Goldman Sachs (NYSE:GS) recently reiterated their broad commodities estimates, highlighting two main opportunities. By focusing on these two main natural resources, portfolios have the chance to profit throughout the rest of the year.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

Look For Fundamental Drivers
So far this year, the iShares S&P GSCI Commodity-Indexed Trust (ARCA:GSG), which tracks a basket of 24 different commodities, has risen around 8.5% year to date. This is the highest the index has been in nearly six months. However, despite the recent gains, Goldman recently lowered its overall commodities return prediction for the next 12 months. Previously, the bank predicted gains in the 15% range, but lowered them to 12% based on deteriorating fundamentals.

Higher crop plantings in the United States will clip much of agriculture's gains throughout the year. Goldman now sees lower prices for both wheat and corn throughout 2012 and only a slight gain in soybeans pricing. In addition, the bank highlighted weakening manufacturing in China as a potential bearish sign for industrial metals. Recently, the Asian Dragon's PMI readings have been drifting lower and hover under the critical 50-point mark, signaling contraction. Both "Chinese construction activity and consumer appliance output remain relatively weak," according to the bank.

Ultimately, Goldman believes much of the "value opportunities" for commodities investors are now gone and portfolios should focus their attention to fundamental drivers. To that end, the investment bank believes both oil and gold will be 2012's superstars, setting price targets of $127.50 a barrel and $1,940 an ounce, respectively. Oil gets the bullish nod, due to the fact that it is vulnerable to supply disruptions. Iran's recent saber rattling is just one example. Also, OPEC's spare capacity is currently "at a trough" point. That will be problematic as the world's economic recovery is slowing gaining momentum. Gold will continue to see gains as many of the developed world's debt problems still have not gone away. Additionally, higher inflationary scenarios will benefit the precious metal.

Playing the Pair
By and large, Goldman still kept their "overweight" call on all commodities. The iPath S&P GSCI Total Return Index ETN (ARCA:GSP) tracks Goldman's proprietary commodity index and includes a hefty weighting towards energy commodity futures. The ETN does have some counterparty risk, as it is technically an unsecured debt obligation of British bank Barclay's (NYSE:BCS), the ETN structure does eliminate many tax headaches for investors. For investors looking for a more traditional futures route, the PowerShares DB Commodity Index (ARCA:DBC) is still the king in terms of assets and trading volume.

With energy getting high marks from Goldman, investors may want to boost allocations to the sector. The E&P firms will be the ones getting the most benefit from higher oil prices. The iShares Dow Jones US Oil Exploration & Production Index (ARCA:IEO) tracks 66 different firms including Apache (NYSE:APA) and Occidental Petroleum (NYSE:OXY). The ETF costs a cheap 0.47% in expenses and could be a great way to overweight the producers. For those who want to directly bet on the rise in Brent crude prices, the United States Brent Oil Fund (ARCA:BNO) can be used to track the global oil benchmark.

Finally, with the investment bank predicting roughly a $200 rise in the price of gold this year, investors still have time to own the metal. The PowerShares DB Gold (ARCA:DGL) is by far the most popular futures method to track gold prices, while the SPDR Gold Shares (ARCA:GLD) remains the physically backed king, with roughly $71 billion in assets. Either fund makes playing gold's ride quite easy.

The Bottom Line
With many of the deep values in natural resources now gone, investment bank Goldman Sachs has dropped its overall forecast for commodity returns. Instead, the asset manager says to focus on fundamentals. That means gold and oil. The previous funds along with the First Trust Energy AlphaDEX ETF (ARCA:FXN) make ideal choices to play Goldman's predictions.

SEE: An Overview Of Commodities Trading.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

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

Related Articles
  1. Investing

    Have Commodities Bottomed?

    Commodity prices have been heading lower for more than four years, being the worst performing asset class of 2015 with more losses in cyclical commodities.
  2. Mutual Funds & ETFs

    Top Three Transportation ETFs

    These three transportation funds attract the majority of sector volume.
  3. Stock Analysis

    5 Cheap Dividend Stocks for a Bear Market

    Here are five stocks that pay safe dividends and should be at least somewhat resilient to a bear market.
  4. Investing Basics

    Tops Tips for Trading ETFs

    A look at two different trading strategies for ETFs - one for investors and the other for active traders.
  5. Investing

    How to Win More by Losing Less in Today’s Markets

    The further you fall, the harder it is to climb back up. It’s a universal truth that is painfully apparent in the investing world.
  6. Investing

    Oil: Why Not to Put Faith in Forecasts

    West Texas Intermediate oil futures have recently made pronounced movements. What do they bode for the world market?
  7. Investing

    The Quinoa Quandary for Bolivian Farmers

    Growing global demand for quinoa has impacted Bolivian farmers' way of life. Should the American consumer be wary of buying this product?
  8. Fundamental Analysis

    Use Options Data To Predict Stock Market Direction

    Options market trading data can provide important insights about the direction of stocks and the overall market. Here’s how to track it.
  9. Stock Analysis

    2 Oil Stocks to Buy Right Now (PSX,TSO)

    Can these two oil stocks buck the trend?
  10. Investing News

    What Alcoa’s (AA) Breakup Means for Investors

    Alcoa plans to split into two companies. Is this a bullish catalyst for investors?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  3. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  4. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  5. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  6. Does index trading increase market vulnerability?

    The rise of index trading may increase the overall vulnerability of the stock market due to increased correlations between ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!