Commodities are bullish in 2023

Commodities look to be outperformers in 2023, with a perfect macroeconomic environment and critically low inventories for almost every key raw material, Goldman Sachs head of commodities reasearch said.

China has reopened its economy from the zero-COVID policy. Demand in starting to rebound and there's insufficient investment in supply, meaning the year will be bullish for prices of commodities.

"Lack of supply is apparent in every single market you look at, whether it is inventories at critical operating levels or production capacity exhausted," Jeff Currie said.

Goldman raised its price forecasts for aluminum, saying higher demand in Europe and China could lead to supply shortages. The bank predicted a multiyear commodities supercycle in late 2020 as years of under-investment prevent supply from keeping pace with demand.

Oil has been capped by recession fears in the EU and US, and China's shaky reopening of its economy. Traders are also tracking the impact of sanctions on Russian oil.

Natural gas prices in Europe dropped to the lowest since September 2021 on Monday, despite the arrival of a cold snap, as liquefied natural gas continued to flood into the continent due to lack of competition from China, where stockpiles of the fuel are full.

This could all change later in the year if a robust recovery in Chinese demand combines with the end of interest-rate hikes in major Western economies, Currie said.

Currie sees parallels with the record run-up in commodities prices from 2007 to 2008. The only exception, he said, is European natural gas, where inventories look sufficient to get through this year.

During Jan 2007 to Jul 2008, The Fed took their foot off the brake, China put the pedal to the metal and Europe started to grow quickly, and oil prices rose by USD100, he said.

Gold price is set to rise as the Fed ease the hiking of rates on inflation falling from 40-year highs.