Commodity bull market? ‘This ship has sailed,’ says Goldman’s Currie

‘This ship has sailed. If you look at all the classic telltale signs of a structural bull market, you have the weak dollar, grain prices…a client called corn “bitcorn” recently — and then you have what’s going on in the metals markets.’

— Jeffrey Currie, Goldman Sachs

That’s Jeffrey Currie, Goldman’s head of commodities research, telling Bloomberg in a television interview on Thursday why he’s confident a “structural bull market” in commodities is well under way.

Currie last fall outlined a case for being overweight “medium term” in commodities, including structural underinvestment in the old economy, policy-driven demand, and macroeconomic tailwinds from a weakening dollar and rising inflation risks.

Other commodity bulls have sounded a similar theme, laying out the case for commodities to end a multiyear slide and perhaps begin a long-run bullish cycle.

See: How a weaker dollar could help fuel a commodities boom in 2021

Commodity prices were crushed in 2020 as the COVID-19 pandemic threw the global economy into recession in February and March. Oil prices tanked, with a soon-to-expire contract for West Texas Intermediate crude trading — and settling — in negative territory for the first time ever in April.

The Bloomberg Commodity Index
which tracks 23 commodity futures markets, traded at an all-time low in April based on data going back to 1991, according to Dow Jones Market Data. The index bounced off its lows, rising into year-end but still suffered an annual loss of 3.7%, according to FactSet.

The index is up nearly 4% already in January, and some components are soaring:

  • Corn futures
    which Currie’s waggish client dubbed “bitcorn”, is up more than 10% so far this month. Soybean futures

    are up more than 9%. Both got an added lift earlier this week after U.S. government data underscored tight supplies and worries about South America’s soon-to-be-harvested crops.

  • Oil futures have defied expectations for a more gradual recovery, with the U.S. benchmark

    jumping more than 9% since the calendar flipped to 2021, while the global benchmark, Brent crude

    is up more than 8%.

  • Metals prices are also chugging higher, pushing copper

    up more than 4%.

Commodities Corner: Here’s what’s in store for industrial metals, after the 2020 rally for steel, iron ore and copper

Equities have seen significant gains too, with the Dow Jones Industrial Average

up around 1.9% so far this month, while the S&P 500

has gained around 1.7%. and both indexes have posted new records.

Currie said commodities, as an asset class, are better poised than commodity-related equities to capture any sustained pickup in inflation pressures as COVID-19 vaccine distribution ramps up and governments add more fiscal stimulus to the policy mix.

President-elect Joe Biden is expected to unveil a relief spending program worth around $2 trillion later Thursday, on top of a roughly $900 billion package approved last month.

While financial assets “anticipate the future,” commodities are spot assets that rise “as a hedge against potential inflation” and reflect “unanticipated physical moves in the real economy,” Currie said.

With the economy likely to “physically take off” with the vaccine-related improvement in economic activity, “you’re going to want to be long spot assets, real assets, so we much prefer the commodity as opposed to the commodity-related equity,” he said.

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