Goldman Says Buy Commodities and 'Worry About Recession Later'

(Bloomberg) — Goldman Sachs Group Inc . urged investors to turn to commodities as most recession risks running through global markets are overstated in the short term, arguing that commodities will rebound amid a deep energy crisis and tight physical fundamentals.

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“Our economists believe the risk of a recession outside of Europe over the next 12 months is relatively low,” analysts including Sabine Shells, Geoffrey Currie and Damien Courvalin wrote in a note. “With oil as a last resort in an era of severe energy shortages, we believe that unwinding the entire oil complex provides an attractive entry point for long-term only investment.”

Commodities hit a record high in June as Russia’s invasion of Ukraine disrupted manufacturing and disrupted supply chains, then weakened as recession fears flared and central banks, including the Federal Reserve, tightened policy to curb inflation. Last week, Fed Chairman Jerome Powell signaled that more interest rate hikes would follow this half, and global stocks hit a one-month low on Monday.

“From a cross-asset perspective, stocks could suffer as inflation remains high and the Fed is more likely to surprise hawkish,” Goldman said in the note, which was titled “Buy Commodities Now, Worry About Recession More late”. He adds: “Commodities, on the other hand, are the best asset class to own during a late-cycle phase when demand remains above supply.”

Other top Wall Street banks have been more cautious about the outlook for commodities in recent months. Among them, Citigroup Inc. warned in July that crude oil could fall to $65 a barrel by the end of this year if a demand-crippling recession hits. Brent crude was last at $101.70.

Goldman Sachs warned that the road ahead may not be smooth, especially if the greenback extends gains, a trend that makes commodities more expensive for holders of other currencies. “We recognize that the macro landscape remains challenging and the US dollar may appreciate further in the near term,” it said.

(Adds view from Citi in fifth paragraph)

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