EDITOR NOTE: When the Fed recently signaled rate hikes in 2023, the market reacted strongly. Equities tumbled, and along with it went a slip commodities. But investors who dumped commodities forgot about one thing. Although the Fed does play a strong hand in the rise and fall of asset prices, what ultimately determines prices is supply and demand. Stocks may be overvalued, but commodities are still in demand, and physical scarcity will likely drive their prices even higher. That’s why Goldman Sachs and most of the smart money crowd see the current decline not as a trend reversal, as many retail investors feared, but a mere pullback--in short: a tremendous buying opportunity, particularly for physical gold and silver. And given the sense of non-urgency, as most investors would rather miss the boat to confirm that a recovery is indeed taking place, it should be easy to get into gold and silver at a favorable price now rather than later. Remember legendary investor Sir John Templeton and his wise words: “Bull markets are born on PESSIMISM, grow on SKEPTICISM, mature on OPTIMISM, and die on EUPHORIA.” We just saw a bout of pessimism among the weaker (paper) gold holders, and that should make you, as with all seasoned precious metals investors, opportunistically euphoric.
June 18 (Reuters) - Goldman Sachs said on Friday the recent slip in commodities prices driven by the U.S. Federal Reserve's decision to bring forward projections for interest rate hikes into 2023 was a buying opportunity for investors.
"The bullish commodity thesis is neither about inflation risks nor Fed forward guidance. It is about scarcity and strong physical demand," the Wall Street bank said in a note.
Physical scarcity, caused by robust demand growth and inelastic supply, could drive Brent crude oil prices to average $80 in the third quarter, with potential spikes above that level, Goldman analysts wrote.
Prices of commodities including oil, gold and copper fell as the U.S. dollar surged on the Federal Reserve's outlook on interest rate hikes.
But oil prices were still close to multi-year highs, while gold has since seen a slight rebound, and copper was en route to its biggest weekly decline since March 2020.
The copper market also remains on course for deficit conditions both over the remainder of this year and into 2022, the bank said, adding recent dips should be viewed as a longer-term buying opportunity.
A recovery in commodities markets excluding energy markets, however, is likely to be slower than from recent sell-offs as transient shocks from weather and Chinese-mandated repositioning have generated negative technical breakthroughs, Goldman warned.
Earlier this month, China's state planner renewed a pledge to step up monitoring of commodity prices and strengthen supervision of spot and futures markets, as producer inflation in the country hit over 12 year-highs.
Goldman also viewed gold as under-valued relative to both real and nominal fundamentals.
"In fact, gold is now pricing a Goldilocks scenario of strong growth without any inflation, implying limited demand for it as either a defensive asset or inflation hedge."
Original post from Reuters