By Sarah Kent
Prices across commodities markets have slumped over the past two
months, but Goldman Sachs Monday predicted the recent sell-off
could be drawing to an end.
"Although the macroeconomic backdrop still remains uncertain,
particularly in Europe, we believe that the price risks are now
shifting more to the upside and are therefore moving back to a
near-term overweight recommendation [on commodities]," the bank
said.
The bank outlined a base case in which the global economy grows
3.3% this year, based on the assumption that European policy makers
would be able to contain the region's debt crisis.
"Given continuing disappointments in the supply growth of oil
and some of the key base metals, this moderate pace of world
economic growth is sufficient to tighten markets during the second
half of this year, creating the need for higher prices to balance
supply and demand," Goldman said.
It added that the massive financial deleveraging seen across
commodities in the last two months suggested the market may have
reached its bottom.
"While further sentiment deterioration can still create
additional financial liquidation, we believe that the financial
participation in many markets is now below what is consistent with
the underlying market fundamentals," it said.
However, the bank's upbeat stance on commodities over the next
few months did not stop it from downgrading its price forecast for
copper, aluminum, nickel and zinc as a result of risks posed by the
euro zone debt crisis and a stronger dollar.
Write to Sarah Kent at sarah.kent@dowjones.com