There is still more room in the commodities rally - Goldman Sachs

New York (Mar 23)  Goldman Sachs is once again calling the commodities sector to go on a massive rampage t.is year. The investment banking giant said the sector remains a great investment going forward, as prices will keep rising, up 15.5% for the next 12 months.

Copper, oil and palladium have been some of the stand-out performers and there's much more to go, said Goldman Sachs. Commodities are the best-performing asset class by a "long shot," the firm said in a research report.

The research note said the sector is a beneficiary of the "reflation trade," which involves assets that are expected to fare well as economic growth revs up, Goldman stated. The investment bank state

"This is the beginning of a new structural bull market," according to the firm's commodities analysts, headed by Jeffrey Currie.

"We believe commodities are pricing a late cycle expansion, precisely because the physical side of the economy is above trend and growing, " the analysts added. "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."

Looking at some of the more technical aspects, one strong indication of the rising demand is the emergence of "backwardation," Goldman indicated. This is when the current, or spot, prices of commodities are higher than those in the futures market. In other words, demand is surging faster than the conventional wisdom anticipated.

Goldman also notes, "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."

If we look at some analysis from the Baltic Dry Index weekly chart below, we can see a strong surge. This index is an index of average prices paid for the transport of dry bulk materials across more than 20 routes. The price is now nearly at pre-pandemic levels and a sure sign that the team at Goldman may be onto something would be a break of the highs.

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