We’ve been saying it for months, and now the big-bank analysts are jumping on board. Still, I have to give Goldman Sachs some credit for finally acknowledging the enduring value of gold, silver, and other hard assets.
With the Federal Reserve fully committed to allowing the inflation rate surpass its previous 2% target, and with the government preparing to print and spend trillions of dollars to fund stimulus and relief payments, the argument for commodities is stronger than ever.
Joe Biden’s $1.9 trillion Covid-19 relief package isn’t the end of the money printing – it’s clearly just the beginning as both the U.S. and the European Union have been increasingly focusing on green initiatives dedicated to sustainability, all of which will come at a steep price tag.
“It’s all looking one way for commodities.” That’s what Goldman Sachs analysts, led by Jeffrey Currie, said in a note to clients. They added that with the entire industry is in a structural deficit (except for cocoa and zinc) and a new bull market is taking shape.
The Goldman analysts also pinpointed the pandemic as an additional driver of higher commodities prices. “Lockdowns have driven a wedge between the consumption of services and goods, generating additional demand from both households and governments looking to stimulate activity while minimizing the virus spread,” they remarked.
We’re already starting to see this in certain commodities, such as copper and nickel. Not long ago, copper, a bellwether among industrial metals, reached a nine-year high at more than $9,000 per ton. Meanwhile, nickel breached $21,000 per ton, its highest price since 2014.
Commodities traders sometimes call it “Doctor Copper” because the red metal is often an indicator of direction. Therefore, don’t be too surprised if gold, silver, and other metals achieve new price targets throughout the remainder of 2021’s first half.
The Goldman analysts further observe an imbalance between the demand and the supply of essential commodities today. “We see supply across all of these markets chasing demand higher but not catching up, leading to demand-pull inflationary pressures, even in oil,” they explained.
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“Moreover, commodities are the crucial link between growing demand, a weaker dollar and inflation, which is why they have been statistically the best hedge against inflation,” the Goldman analysts added – and of course, we’ve been recommending gold and silver as inflation hedges for a long time.
The supply deficit is only likely to get worse as both China and the U.S. are trying to accelerate a retrenchment of key supply chains. China is looking at limiting rare-earth exports, while the White House has ordered a review into U.S. supply-chain vulnerabilities after automobile makers ran low on microchips.
While the Goldman Sachs analysts didn’t set an exact time frame for the commodities super-cycle that’s just starting, we can look to history and see that once these bullish cycles have begun, they can last for years and the asset prices can reach incredible heights.
At the same time, gold and silver have experienced a short-term dip in recent trading sessions. This doesn’t negate the overall uptrend at all, however, and any price declines should be viewed as opportunities to add to your positions in both the physical assets and the stock shares of select mining companies.
In the near future, there should be another flash point that drives commodities prices higher. It might be an inflation scare, or the Federal Reserve pushing government bond yields back down. Or, it might simply be a rush of investors seeking to hedge against a crash in stock-market index funds.
Whatever the next catalyst might be, you’ll want to position yourself ahead of time. Gold under $1,800 is a terrific value, as is silver below $27. These prices won’t be around forever, and you can take part a rare generational opportunity that’s available to investors everywhere.
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