Commodity market: two different views
Nowadays, commodities market is a highly discussed issue. The US dollar and prices of commodities are highly correlated. The weakening dollar always supports the rise of the commodity market and emerging market assets. That is why the significant fall of the dollar caused disputes between experts about the future of commodities.
The first group “guided” by DoubleLine CEO Jeffrey Gundlach is looking for the rise of the commodity market, expecting a weaker dollar at the same time
J. Gundlach based his opinion on a comparison of total returns of the S&P Goldman Sachs Commodity Index with the S&P 500 over the last several decades. So he concluded that there are points where commodities outperformed stocks, it led to a sharp increase in stocks, and vice versa. Now the S&P GSCI Total Return Index-to-S&P 500 Index ratio is at its lowest point, so it means that we will see a super rise of commodities this year.
Together with Jeffrey Gundlach, analysts at Goldman Sachs are calling for rising position for the next 12 months. Bank of America Merrill Lynch has raised the a-tonne copper price forecast from $7.140 to $7.700. Bloomberg Intelligence commodity strategists compare prospects of commodity market to the bull market of 2002-08. Hedge fund managers believe in strong oil and are building long positions.
These experts saw support of their decisions in rising prices of different commodities. For example, copper, palladium, platinum, and gold have grown in the last three months. The investment of assets reached the highest level in four years. Rising prices of crude oil helped analysts to form positive forecasts as well.
However, not all of the analysts are so positive about the perspectives of the commodity market.
Wells Fargo does not expect the continuation of the dollar fall, it considers the position of the dollar as neutral. The company denies the rise of the commodities prices, anticipating over-supply and range-bound prices at the commodity market for the next 10 years.
To sum up, we can say that it is quite difficult to forecast the future of the commodities prices because none of the experts could give enough number of supportive arguments for their positions. The price of the US dollar is volatile now, so we cannot be absolutely sure how it will affect the commodity market.