Goldman cuts commodity outlook as it exits position on gold drop

Goldman Sachs Group Inc. cut its “near-term” outlook for commodities and reduced forecasts for oil and coffee amid prospects for weak demand from China to Europe. The bank also exited a bet on lower gold prices.

Goldman Sachs lowered its three- and 12-month return forecasts for the Standard & Poor’s GSCI gauge of 24 commodities to 2.5%, from 6% in three months and 3% in 12 months, and cut its near-term outlook on commodities to neutral from overweight, according to the report, dated today. It exited its bet on lower gold prices, with a potential gain of 10%, while saying bullion may fall even more.

“Commodity returns have dropped sharply so far in April as weaker-than-expected macroeconomic data releases in the U.S., Europe and China furthered concerns around global economic growth,” New York-based analyst Samantha Dart said in the report. “The negative sentiment in the market has weighed on cyclical commodity prices in particular.”

The GSCI index slid as much as 1.1% today as a report showed Chinese manufacturing expanded at a slower-than-expected pace, providing more evidence of a pullback in the country’s economic growth. Commodities, which touched a nine-month low on April 18, are down 6.4% this year. Treasuries returned 0.7%, according to an index calculated by Bank of America Corp., and the MSCI All-Country World Index of equities gained 6.1%.

Sell Gold

Goldman Sachs issued a sell recommendation on gold on April 10, before the precious metal plunged 13% in the two sessions through April 15, the biggest drop in three decades. Today gold futures traded at $1,410.70 an ounce on the Comex in New York, up 6.7% from a 14-month low set on April 16. The bank said today gold may trade at $1,530 in three months, $1,490 in six months and $1,390 in 12 months.

Goldman Sachs said it closed its bearish recommendation on gold as prices moved above $1,400 and were “significantly below” its target at $1,450. Holdings in exchange-traded products backed by gold dropped 11% this year to 2,330.5 metric tons, according to data compiled by Bloomberg. Assets in the SPDR Gold Trust, the biggest gold exchange-traded fund, are the lowest since 2010.

“The move since initiation was surprisingly rapid, likely exacerbated by the break of well-flagged technical support levels,” Goldman Sachs said. “Our bias is to expect further declines in gold prices on the combination of continued ETF outflows as conviction in holding gold continues to wane as well as our economists’ forecast for a re-acceleration in U.S. growth later this year.”

Brent Oil

Goldman Sachs cut its near-term outlook for Brent oil to $100 a barrel from $110 and lowered its 2013 forecast to $105 from $110. China’s demand for oil “slowed down significantly” from January to March, and the bank recently cut its outlook for the country’s economic growth in the second quarter, according to the report.

“Our China economists see near-term headwinds to real growth improvement continuing,” the bank said. “This increases the risk that Chinese oil demand growth will remain relatively weak in the near-term.”

The bank said it remains bullish on copper at lower prices. Goldman cut its 12-month outlook for London Metal Exchange copper on April 22 to $7,000 a ton from $8,000. The metal for delivery in three months fell as much as 2.5% today to $6,762.25 a ton.

Arabica coffee may trade at $1.45 a pound on ICE Futures U.S. in New York in three, six and 12 months, below prior forecasts for prices as high as $1.75 in a year, Goldman Sachs said, citing improved production prospects in Brazil. The bank also cut its outlook for cattle prices because of larger-than- expected U.S. feedlot supplies.

Bloomberg News

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