The 2010 commodity outlook from Goldman Sachs has just landed in our inbox and a quick skim across the forecasts confirms the bank that previously liked to be bullish oil, is now also bullish gold.
Well relatively so, in so much as they’re raising their 12-month forecast to $1350 per troy ounce versus a previous $960.
Although they do warn that once the Fed reins in its unconventional policies and sets upon a tightening path, gold prices may come under pressure.
As they note (our emphasis):
With the US Federal Reserve expected to keep its short-term nominal interest rate target near zero through 2011, we expect the low US real interest rate environment to continue to provide strong support for gold prices in 2010 and 2011. However, as we also expect US inflation to remain subdued, we expect gold prices to come under significant downward pressure once the US economic recovery strengthens and the US Federal Reserve begins to raise interest rates. Consequently, an earlier-than-expected tightening of US monetary policy is the primary downside risk to gold prices in 2010 and 2011, in our view. In the interim, however, we expect the low US real interest rate environment, continued gold-ETF buying and reduced Central Bank gold sales will allow gold prices to continue to move higher. We therefore raise our gold price forecasts to $1200/toz, $1260/toz, and $1350/toz on a 3-, 6-, and 12-month horizon, respectively, with a 2010 average price forecast of $1265/toz and a 2011 average price forecast of $1425/toz. While an earlier than expected tightening of US monetary policy presents a substantial downside risk to gold prices in 2010 and 2011, we believe the near-term risk to our gold price forecast is skewed to the upside.
Meanwhile, they have actually cut their 12-month forecast on WTI oil to $92.5 per barrel versus $95 per barrel — the forecast acknowledging that a slower than expected recovery in developed market demand will have “pushed back the clock on global inventory drawdowns”.
Although that’s not to say they’re more sanguine on the longer-term price outlook. The analysts have introduced a 2011 forecast of $110 per barrel based on strong demand from emerging markets. As they explain:
Our forecast rebound in US economic growth to 2.1% in 2010 and 2.4% in 2011 will likely push US total petroleum demand higher, albeit only slowly, reaching 19 million b/d by 3Q2010. However, although we expect the economic recovery to gradually increase total petroleum demand through 1H2011, we expect a global supply shortage in 2H2011 as strong emerging market demand runs up against anemic production growth, creating the need for demand cutbacks in the developed world (Exhibit 6). Furthermore, although distillate demand in the US will likely recover gradually, we expect demand to reach only 4 million b/d by 1Q2011 before sharing the same fate as US total product demand in the second half of 2011.
And here for your viewing pleasure is the bank’s view on the entire commodity complex: