Goldman Sachs Sees Commodity Recovery as Slump Erases $99 Billion

The commodities rout that knocked off $99 billion of market value last week is driving out speculators and leading Goldman Sachs Group Inc., which forecast the plunge, to predict a possible recovery. The combination of slower growth in U.S. service industries and fewer German manufacturing orders helped drive the Standard & Poor’s GSCI Index of 24 commodities down 11 percent in five days, the most since December 2008, and erased all the gains since mid-March. Wheat, zinc and gold rebounded at the end of the week as U.S. payrolls exceeded economists’ forecasts, reducing concern that demand will weaken. “Given the magnitude of the pullback, it does create an opportunity for more upside potential, particularly in the second half of this year, when fundamentals are expected to tighten,”Jeffrey Currie, the London-based head of commodity research at Goldman, said in a May 6 interview. A month ago, Currie told investors they should be “underweight” in commodities. “In the very near-term, we’d be a little cautious,” he says now.

“Ultimately, supply remains weak, and demand remains strong, and that’s why they will eventually go higher,” said John Stephenson, who helps manage $2.6 billion at First Asset Investment Management Inc. in Toronto. “Commodities, in the worst case, will start firming by late August, but in the meantime, I would see this as a buying opportunity.” “If you look at the fourth-quarter projection for oil, that’s 90 million barrels a day globally, and I don’t think the world can produce more than 88 million,” Pickens said in an interview from Los Angeles with Willow Bay and Lisa Murphy on Bloomberg Television’s “Fast Forward.” “I don’t think the commodities boom is over,” said Robbert Van Batenburg, an analyst at Louis Capital Markets in New York, who correctly predicted a 2007 rebound in oil. “We may see a pause in the rally, and that’s OK. Past the summer doldrums, I think the rally picks up where we left off.”