Goldman Sachs is adding more sticks and branches on the blazing pyre for commodities bulls. The firm has cut many commodity price targets for 2009. While this is affecting the psyche of traders today, this call was rather late and a reversal now that the prior "possible" targets are so much higher than today’s prices.
Oil was first on deck. Goldman Sachs now believes that oil may average$45.00 per barrel in 2009. Some reports are saying that Goldman Sachshad been calling for $200 oil, but that was actually a number from the"super-spike scenario" it was running in late 2007 and into 2008.Interestingly enough, Goldman Sachs sees oil in the $30’s in the comingmonths.
Aluminum targets were cut to $1,410 per tonne from $2,310. Its 3-monthtarget was cut to $1,300 (down 36%) and 6-month target was cut to$1,380 (down 37%). Targets on copper were cut to $2,950 from $5,230 for2009, but cut 30% to $2,700 for 3-months and cut about 40% to $2,850for 6-months. Even nickel was cut was cut by almost 30% and zinc byalmost 20%.
About the only right spot was a call that gold may actually rise.Goldman Sachs raised its gold target by about 1% to $700 per ounce witha 6-month target up over 7% at $785 per ounce. Goldman’s thesis hereis that Gold will be used as a haven. That has not held true in thislast market tank, so it will be interesting to see how this pans out.Another part of the thesis is for a reversal in the recent dollar gains.
Goldman Sachs has also noted that many agriculture demand scenarioswill hold up, although it has lowered expectations for corn and wheat.
Part of the premise here is an economic bottoming out in mid-2009 witha recovery starting in late-2009. The problem with making theseassumptions is that the direction of 2009 is highly dependent upon thewheels not flying off the car. Literally in this case. Goldman believes stability or moderate increases could be seen in late 2009 and another upturn possible in 2010 after the economy recovers and as stimulus packages are being more effective and noticed in the economy.
If Goldman Sachs is correct, then we won’t have to worry aboutinflation at all in 2009. Stagflation is never good. But it turns outthe deflation is perhaps the biggest fear of them all.
No wonder short-term Treasury yields are effectively at ZERO PERCENT.
Jon C. Ogg
December 12, 2008