A ccording to Goldman Sachs, the demand for these products is not increasing along with supply, thus causing inflationary pressures (as for oil)
“It’s all looking one way for commodities. —” that’s what Goldman Sachs (GS) analysts, led by Jeffrey Currie, said in a note to clients, claiming that with the entire industry in structural deficit (except for cocoa and zinc) a new bull market is taking shape.
Keyword — REV: "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", said GS analysts. According to the experts, it is possible to understand such a scenario by looking at redistribution policies, environmental policies, and versatility in supply chain initiatives, all summarized by the acronym REV.
In A Bull Market, Demand Is The Driver: GS analysts point out that the bull market is being driven by demand, not supply. Nowadays governments have changed the way they interact with the economy: three days ago the U.S. Congress approved President Joe Biden's $1.9 trillion Covid-19 relief package and the European Union has been increasingly focusing on green initiatives dedicated to sustainability. Both China and the U.S. are trying to accelerate a retrenchment of key supply chains, with China looking at limiting rare-earth exports while the White House ordered a review into U.S. supply-chain vulnerabilities after automobile makers ran low on microchips, GS analysts added.
And In Commodities Market, The Supply Chases The Demand: "We see supply across all of these markets chasing demand higher but not catching up, leading to demand-pull inflationary pressures, even in oil", the analysts explained. "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 Commodities Rally: Throughout Tuesday, crude-oil futures climbed 25%, HG00 copper futures gained 17% and NG00 natural gas futures were up 9%. Agricultural commodities, including wheat, also gained ground.