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Case for Commodities strengthens: Goldman Sachs

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NEW YORK (Scrap Register): Goldman Sachs said the rally in the commodities sector likely has room to run even though this has been the best-performing asset class so far this year with a 10.3% rise in the S&P GSCI commodity index.

“Oil fundamentals are now more bullish as robust demand faces supply disappointments. We are raising our 12m [12-month] S&P GSCI returns forecast to 8% from 5% yet markets remain complacent,” Goldman added.

Analysts said physical markets ignore growth concerns, rising rates and the stronger U.S. dollar. Only financial markets care, which is why only gold has traded substantially lower with the risk-off sentiment, Goldman noted.

Growth concerns will likely prove temporary, realized demand remains robust and OPEC has never been able to catch late-cycle demand growth to replenish inventories before a recession occurs. And even if growth were to decelerate further, it would take global GDP [gross-domestic-product] growth collapsing to 2.5% yoy [year-on-year] to simply balance the oil market!

Most of the Goldman report focuses on the oil market, with analysts saying growth in U.S. shale output cannot offset supply problems. Analysts said oil demand is likely to cross 100 million barrels per day this summer, creating a 1 million-barrel-per-day deficit without an OPEC/Russian response.

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