Goldman capitulates on commodities

Commodity prices usually rally as the U.S. Federal Reserve heads into a hiking cycle, but it might be different this time, Goldman Sachs said in a note Monday. Historically, “commodities perform the best when the Fed is raising rates,” Goldman said. “This makes intuitive sense because the reason why the Fed raises interest rates is that the economy displays signs of overheating. Strong aggregate demand and rising wage and price inflation are precisely the time when commodities perform the best.”   It added that rising interest rates in China also tend to coincide with better commodities performance, noting the mainland’s “outsized role” in demand. …But Goldman pointed to three risks that could derail its view.   Firstly, it noted that technology changes and U.S. shale oil production could have “a profound impact” on commodity returns. Secondly, Goldman said the China tailwind may be waning. Finally, Goldman also pointed to a risk from the Fed’s hiking cycle itself, noting that the current pace has been much slower compared with previous cycles amid a gradual U.S. and global economic recovery. CNBC

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