‘Buy Commodities Now, Worry About the Recession Later’

By Senad Karaahmetovic

Sabine Schels, the senior commodities strategist at Goldman Sachs, sees the positive risk reward for commodities at current levels.

Most commodity sectors fell sharply in recent months amid “excessive” recession fears. Goldman’s economists see the market still in a “long late-cycle stage” with Schels noting that “commodities are the best asset to own late cycle.”

Commodities are the best asset to own as demand remains above supply, despite the Fed likely surprising on the hawkish side as it continues to grapple with .

“Our strategists are calling for a renewed reduction in risk appetite, we believe the correlation of commodities to other risky assets is set to fall again,” Schels wrote in a client note.

Along these lines, Schels sees a “positive” 12-month forward outlook for commodities, which results in the raised forecast for and .

Goldman Sachs sees nearly 40% upside potential in the S&P GSCI, which serves as a benchmark for investment in the commodity markets.

While the Goldman Sachs strategist is “cautious” on the metals in the near term, she argues that Energy and agriculture are likely to lead commodities higher.

“On a relative basis, oil prices now look cheap compared to global gas prices and even thermal coal given the run-up in these markets that oil has completely lacked. With oil the commodity of last resort in an era of severe energy shortages, we believe the pullback in the entire oil complex provides an attractive entry point for long-only investments. Net, we remain very positive on the energy and agriculture sectors despite strong YTD price appreciation,” Schels concluded.