Goldman sees commodities bull run over as returns trail stocks

Commodities are trailing equities for the longest stretch in almost 15 years as Goldman Sachs Group Inc. and Citigroup Inc. predict the end of the decade-long bull market even as the global economy expands.

The Standard & Poor’s GSCI Spot Index of 24 commodities lagged behind the MSCI All-Country World Index for six months, the longest stretch since 1998. Hedge funds cut combined bullish bets across 18 U.S. raw-material futures by 51% from a 16-month high in September and are bearish on six of them. Commodities will return 1.6% in a year as losses in agriculture and precious metals diminish gains from energy and industrial metals, Goldman said last month.

Investors pulled a record $23.3 billion from commodity funds this year as global equities attracted $182 billion, according to EPFR Global, which tracks money flows. Prices that more than doubled in 10 years spurred expansions at mines, farms and oil fields. Gluts are emerging as the International Monetary Fund predicts global growth of 3.3% this year, from 3.2% in 2012. The group cut last week its estimates for China, the top consumer of metals, grains and energy.

“There are times when you probably should be avoiding commodities, and I think this is one of them,” said John Stephenson, who helps oversee about C$2.7 billion ($2.61 billion) at First Asset Investment Management Inc. in Toronto. “Anytime you have a whole lot of inventory and visible supply, prices are going to be under pressure. The real issue for commodities is the source of demand, China, is weak.”

Natural Gas

The S&P GSCI dropped 3.1% this year, as 17 members of the gauge retreated. Silver led the decline, falling 26%. Corn and gold also entered bear markets in April, joining copper, sugar, wheat, soybeans and coffee. Natural gas is leading the gainers with a 17% advance, while cotton rose 11%. The commodity index is 30% below its record close in July 2008.

The MSCI equity gauge gained 6.3% since the end of December, with the Dow Jones Industrial Average and the S&P 500 Index reaching records last month. The dollar strengthened 3.2% against six major trading partners. Global bonds measured by the Bank of America Merrill Lynch Global Broad Market Index lost 1.5% in May, the most since April 2004.

Commodities are diverging from equities as the supercycle, or longer-than-average period of rising prices, is eclipsed by the supply surge, Jeffrey Currie, Goldman’s head of commodities research in New York, wrote in a report May 14. The agricultural segment of the S&P GSCI will drop 13% in 12 months as livestock and precious metals lose 4%, he said. Energy and industrial metals will advance 5%.

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