Goldman Sachs Group Inc. expects commodity prices to decline this year even after precious metals and crop prices rallied on Ukraine tension and weather concerns.
The S&P GSCI Enhanced Commodity Index may drop 4 percent in the next 12 months from a 4.3 percent decrease predicted in February, analysts led by Jeffrey Currie wrote in a report dated yesterday. Precious metals will decline 15 percent, compared with a 14 percent retreat forecast in February, it said. Agriculture prices will drop 10 percent, from February’s estimate of a 9 percent loss, it said.
Gold rose 10 percent in 2014, rebounding from the biggest drop since 1981, as unrest in Ukraine and concerns the global recovery may be uneven boosted demand for a haven. Tensions in Ukraine also contributed to corn’s 20 percent jump this year on speculation supply may be disrupted and dry weather in the U.S. pushed wheat 12 percent higher. The six-month rolling correlation of commodities and equities returns has averaged 23 percent this year, the lowest since 2008, Goldman says.
“Since the beginning of the year, transient events including cold weather, Chinese credit concerns and tensions in Crimea have driven commodity prices,” Goldman said. “Although these drivers are transient in nature, they are idiosyncratic, which has helped to drive down the correlations not only with other asset classes but also within the commodity space itself, reinforcing the diversifying component of the strategic investment case for commodities.”