Goldman predicts commodities prices through 2014

Commodities are poised to decline 5.5 percent over the next 12 months after climbing amid tensions in Iraq, Goldman Sachs Group Inc. said.

Energy prices will be 5 percent lower a year from now, precious metals will drop 15 percent and agricultural products will retreat 10 percent, the bank said in an asset-allocation report dated yesterday. Commodities will decline 4 percent in the next three months, according to the report.

“Despite the negative return we forecast after the recent rally driven by events in Iraq, we stay neutral commodities due to the hedging benefits they offer against these risks,” Goldman analyst Jeffrey Currie in New York said in the report.

Brent crude reached a nine-month high in London on June 19 after Iraqi insurgents captured the northern city of Mosul and advanced to towns just north of Baghdad, sparking concern oil output might be interrupted in OPEC’s second-largest producer. Gold futures touched the highest price since April 15 today in New York trading.

Today, Brent fell as much as 0.5 percent after Iraqi forces regained control of the Baiji refinery in the north from Islamist militants, and fighting has yet to spread to the south, home to more than three-quarters of the country’s crude output. Saudi Arabia was the only producer in the Organization of Petroleum Exporting Countries that pumped more oil than Iraq last month, according to data compiled by Bloomberg.

Larger stockpiles

Still, risks in energy are “skewed to the upside in an environment of heightened geopolitical risks and very limited OPEC spare capacity,” the Goldman analyst wrote. Precious metals will drop amid rising real interest rates, while agriculture prices are set to decline as inventories increase, according to the bank.

Commodity prices as measured by the Standard & Poor’s GSCI Enhanced Commodity Index rose 3.4 percent so far this month and are up 7.1 percent in 2014.

Goldman forecast May 14 the enhanced index might have zero total return in three months and decline 2.2 percent over 12 months. The bank projected a 4 percent drop over 12 months in an April 13 note.

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