Goldman Sachs Running Against Commodity Bulls in Short Term?


"[Goldman] cut its exposure to commodities reflecting a belief that the rally in prices has, for now, run its course. . ."

After rising this year from a very low level, commodity prices in general and metals prices in particular have paused and even dropped back a little over the summer as Chinese buying came to an end and the world seemed to draw breath after such a strong rebound. The bulls would have us believe this is a necessary consolidation before the next rise but MetalMiner has not been so confident we are going to see any dramatic moves up from current levels and have consistently called for caution. Even a weakening dollar has failed to re-ignite the rally in copper in the absence of any significant buying interest from China and after the heavy restocking we saw in H109.

However a report in Reuters details Goldman Sachs latest change of emphasis regarding commodities in Q3. The most successful bank on Wall Street has cut its exposure to commodities reflecting a belief that the rally in prices has, for now, run its course and we can expect to see a dip back in prices in Q4. The change is reflected in two ways, first, a reduction of 32% in their VaR (value at risk—the sum of money a bank is willing to lose in one day of trades) to $27 million and a reduction in hiring for the commodity department.

Of course their change of approach does not preclude them from coming back into the market next year but it supports our own position these last two months that further price increases are unlikely and Q4 could see a drop back in prices as demand fails to materialize as hoped.

Goldman has scaled back, while other Wall Street banks like Citigroup and JP Morgan Chase have continued to hire in the commodities sector, suggesting they see continued strong growth but it takes a brave soul to bet against Goldman's track record in reading the markets, love 'em or hate 'em their past success speaks for itself.

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