Goldman Sachs says Commodities May Rally 20% on Emerging-Markets Growth

Commodity prices may advance 20 percent over the next year as growth in emerging markets offsets the impact of the sovereign-debt crisis in Europe and a slowdown in developed economies, according to Goldman Sachs Group Inc. (GS)

The bank reiterated an “overweight” recommendation on commodities over the next 12 months, while remaining “neutral” in the near term, analysts led by Jeffrey Currie wrote in a report today. Oil and copper forecasts for 2012 were reduced.

“With recent GDP revisions by our economists falling hardest on Europe but emerging market growth expectations still relatively solid, we continue to believe that demand growth in 2012 will be sufficient to tighten major commodity markets,” Currie wrote. “We now see a flatter upward trajectory for commodity prices.”

Cutting Calls

Goldman joins BNP Paribas SA and Commerzbank AG in cutting calls for the metal that some investors see as a barometer for economic activity. The bank also trimmed the 12-month price target for copper to $9,500 per ton from $11,000, while zinc’s target was reduced to $2,400 per ton from $2,700.

Fade Goldman

For starters, the fact that Goldman and Commerzbank trimmed estimates says they failed to spot the weakness in Europe, the US, and China and what that would do to commodity prices.

I see no reason to be bullish or even neutral on commodities now.

The idea that emerging markets will trump a recession in Europe, the US, and Australia is ridiculous to put it mildly. Moreover, the idea that emerging markets will decouple from the global economy is preposterous in and of itself.

Finally, China is overheating and a new regime change next year will likely end the huge infrastructure plays in China that have been sucking up copper and other commodities.

Goldman‘s Rationale Horrendously Flawed

Simply put, no matter what commodities do, Goldman’s rationale is horrendously flawed. Yes, commodities “may” rally 20%. However, they “may” fall 20% or even 30% first, and I suggest that is more likely.

Mike “Mish” Shedlock
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