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Oil jumps to $111 a barrel after commodities specialist Jeffrey Currie says recent price falls have made oil, copper and zinc more attractive investments
The oil price jumped on Tuesday after Goldman Sachs called the bottom of the commodities market – just six weeks after calling the top.
Commodities prices have fallen by an average of 10% since Goldman commodities specialist Jeffrey Currie declared that in the near term, the rewards of holding raw materials such as oil, copper, platinum and cotton no longer outweighed the risks.
However, now Currie has said that the declines in key commodity prices in the past six weeks means they are "now more in-line with near-term fundamentals". In particular, he recommended investing in oil, copper and zinc.
Brent crude rose by $1.42 to $111.52 a barrel in late afternoon trading, zinc jumped by 2.9% to $2,189.50 a tonne, and copper increased by 1.8% to $8,905.50.
Currie has raised his forecast of where the oil price will stand at the end of the year from $105 a barrel to $120, arguing that slow, but sustained, economic growth and continuing loss of production from Libya will put upward pressure on prices. He also raised his 12-month forecast from $107 to $130 and his prediction for the price at the end of 2012 from $120 to $140.
In 12 months' time, Currie expects copper to have risen to $11,000 a tonne, zinc to have reached $2,700 and aluminium to be at about $2,900.
"While a sharp decline in world economic growth remains a downside risk to commodity prices, we see the current slowdown in economic growth as part of a normal mid-cycle pause, partially driven by higher commodity prices, and therefore not a reason to expect commodity prices to decline substantially," Currie said.
"Further, we believe that the recent evidence of economic weakness represents signs of a slowdown and not a downturn, which is reinforced by signs that Chinese metal demand has already returned".
Shortly after Currie's note, gold reached a new record in pound terms, hitting £944 an ounce at one point, as sterling continued to weaken against the dollar at the same time as investors moved cash into the relative safety of the precious metal. Gold rose by 0.8% to stand at $1,520.75.
Currie said: "We expect gold prices to continue to climb in 2011 as the resumption of quantitative easing (QE) should keep US real interest rates low. However, with the current round of QE set to end in June, and our economics team now forecasting strong US economic growth in 2011 and 2012, we expect US real interest rates to begin to rise into 2012, likely causing gold prices to peak in [that year]."
