Goldman Sachs just dropped its top commodity recommendations, saying risks were 'misplaced' - here are its new batch of trades
- Goldman Sachs is closing 10 of its commodity trading decisions made in December as a reflection of a changing macroeconomic landscape, according to a note published Friday.
- "Time to go micro," the bank says, meaning smaller, sector specific risks are now taking center stage.
- The bank is bullish on agriculture and pork, among other commodity picks.
Goldman Sachs named its 10 best commodity trades last year. It's now dropping all of them.
"We are closing all of our remaining top 10 trading recommendations from last December - all of which were based upon misplaced macro risk - and opening up 10 new top trades," analysts wrote in a note to clients on Friday.
"Time to go micro," the bank says, meaning smaller, sector-specific risks are now taking center stage.
Goldman Sachs says there has been a rise in "idiosyncratic micro risk," such as Vale's dam disaster in Brazil, African swine fever, and cyclones. There's also been a drop in "macro" risks - both the US and China appear closer to a deal in the ongoing trade war and recessionary fears have dimmed, the bank says.
"So far this year, policy makers around the globe have demonstrated substantial flexibility," the note said. "Accordingly, macroeconomic tail risks to both the upside and downside have been sharply reduced."
Commodity demand has also bucked expectations. A decline in volatility in commodity markets has made micro-economic markers better opportunities for value, according to Goldman.
The dovish moves from the Federal Reserve and European Central Bank, alongside more accommodative policies in China, have aided this shift.
Some of the specific micro risks, the bank says, include rising climate volatility; economic sanctions on Iran and Venezuela that are creating "material disruptions"; and viruses have reduced livestock supply in some areas, notably in China.
Goldman is particularly bullish on agriculture - saying the increasing likelihood of a US-China trade deal would remove damaging tariffs from key commodity sectors.
The note emphasises a long position on US agriculture (the bank is specifically long the S&P GSCI Agriculture & Livestock Index) in the hopes that soybean purchases will spike in the event of a US-China trade war detente.
Pork is also key. Goldman says US pork import prices might fall from highs after an outbreak of African swine fever in China trimmed livestock supply.
"Export commitments to China have risen dramatically this year, and we see further room for expansion in realized shipments" in livestock, the note says.
Other new positions include:
- Long copper and short zinc
- Long December 19 aluminum and short December 20 aluminum futures
- Long 62% vs. 58% iron ore premium
- Long gold and short silver
- Long palladium, short platinum trade
- Long S&P GSCI Agriculture & Livestock Index
- Long London Metals Exchange aluminum and short Shanghai Futures Exchange aluminum
Here are the closed trades:
