Are Commodities Oversold And A Buy Right Now?

Are Commodities Oversold And A Buy Right Now?

Commodity prices and related commodity ETFs have fallen off in recent weeks on concerns over demand weakness in emerging markets, the ongoing trade war and potential oil production increases. However, the selling may have been overdone.

Over the past month, the Invesco DB Commodity Index Tracking Fund (DBC) fell 1.9%, iPath Bloomberg Commodity Index Total Return ETN (DJP) dropped 5.0% and United States Commodity Index Fund (USCI) declined 3.3%.

Goldman Sachs argued that concerns over oil and other commodities have been “oversold,” and even those most exposed to the risks of a U.S.-China trade war are now worth a second look.

Most of the selling may be attributed to the potential fallout from an escalating trade war between Washington D.C. and Beijing. The White House is set to implement a 25% tariff on $34 billion in Chinese goods while China said it would retaliate on the same value in U.S. goods.

Commodities Not Set to Be Largely Hit

However, Goldman argued that commodities were not set to be largely hit.

“Only markets that cannot be rerouted globally to other consumers will be impacted by the proposed July 6th tariffs … We believe that the trade war impact on commodity markets will be very small, with exception of soybeans where complete rerouting of supplies is not possible,” according to a Goldman note.

Goldman also singled out soybean contracts, which have “value at current levels.”

The Teucrium Soybean Fund (SOYB) jumped 4.2% Friday, with CBOT corn futures up 2.4% to $3.6075 per bushel, according to Bloomberg. Nevertheless, SOYB is still down about 11% since June.

“We believe all of these concerns have been oversold. Even soybeans, the most exposed of all assets to trade wars, is now a buy,” Goldman analysts said.

The bank is broadly bullish on commodities as its outlook is bolstered by strong global growth and depleting inventories in energy and metal markets that would likely result in higher prices. Goldman Sachs maintained its “Overweight” assessment of the commodities space, projecting a 12-month expected return of 10% for the S&P Goldman Sachs Commodity Index.

Goldman also singled out soybean contracts, which have “value at current levels.”

If you see a red arrow turn green in the commodities area of your InterAnalyst subscription, it may be profitable to move on it right now.

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