Goldman Sachs Commodity Outlook: Going long on gold is the "Top Trade," aiming for $3,000 next year, while oil and gas prices may "rise first and then fall."

Looking ahead to 2025, the global economic situation is unpredictable. In a volatile global environment, commodities may attract investors due to their characteristics of hedging against inflation and risks.

Goldman Sachs analysts, led by Daan Struyven, pointed out in a report titled "Stay Selective, Hedge the Tails" released on the 17th that investors can avoid tail risks by selectively investing in commodities. During periods of unexpectedly high inflation, commodities provide strong returns, while the real returns on stocks and bonds are negative.

Goldman Sachs believes that gold is the "Top Trade" for coping with inflation and geopolitical issues, expecting gold prices to rise to $3,000 per ounce by the end of 2025. The structural drivers pushing gold prices up come from central bank demand, while cyclical drivers stem from interest rate cuts by the Federal Reserve. The main downside risks are rising interest rates and a stronger dollar.

Oil and natural gas, on the other hand, need to flexibly respond to their respective short-term and long-term dynamics. Brent crude oil prices face pressure from OPEC+ production increases and Trump tariffs, expected to remain in the range of $70-85 per barrel in 2025. By the end of 2026, it may further drop to $61 per barrel. Additionally, demand for copper and aluminum is expected to be stronger than that for iron ore in 2025.

Gold: The Investor's "Safe Haven"

Goldman Sachs lists gold as the most noteworthy commodity for 2025, expecting that driven by the normalization of demand from investors and institutions, gold prices will rise to $3,000 per ounce by December next year.

Currently, the gold price is $2,699 per ounce, indicating that there is still about a 10% upside potential.

The report states that after the U.S. election results are settled, gold prices experienced a significant pullback, with speculative buying withdrawing from historical highs, providing a "good opportunity" to buy gold.

Goldman Sachs indicates that this strong bullish expectation is supported by three main logics:

First, the surge in central bank demand for gold has become a long-term force supporting its price. Goldman Sachs states that since the escalation of the Russia-Ukraine conflict in 2022, global central bank demand for gold has significantly increased, with gold reserves becoming a core asset to combat financial sanctions and debt risks. Additionally, due to concerns over U.S. debt issues, central banks may also increase their gold reserves.

According to Goldman Sachs, central bank demand has increased fivefold compared to before 2020, with gold purchases reaching 84 tons in September 2023. This trend is expected to continue in the coming years, providing stable upward momentum for gold prices.

Second, there is cyclical support from Federal Reserve interest rate cuts. Goldman Sachs predicts that the Federal Reserve will lower the federal funds rate to a level of 3.25%-3.5% in 2025, which will lead to a 7% increase in gold prices by December next year, gradually boosting ETF gold holdings. Lower interest rates diminish the attractiveness of the dollar, enhancing the investment value of gold as a non-yielding asset Finally, it is driven by market risk aversion demand. Goldman Sachs stated that gold is seen as the preferred asset to cope with tail risks (such as tariff escalation, geopolitical conflicts, and concerns about U.S. debt defaults). In scenarios where trade tensions escalate or fiscal sustainability triggers market panic, gold prices may rise further, even surpassing Goldman Sachs' baseline forecast.

"If concerns about U.S. fiscal sustainability intensify, we estimate that gold prices will rise further by 5% to $3,150 by December 2025."

It is important to note that gold's safe-haven function is not without flaws. Goldman Sachs pointed out that potential interest rate hikes and U.S. dollar appreciation remain the main risks facing rising gold prices.

Oil: A Mix of Short-Term Upside and Mid-Term Pressure

Regarding oil, Goldman Sachs predicts that Brent crude oil prices will remain in the range of $70-85 per barrel in 2025. However, this forecast is underpinned by a complex balance of risks.

In the short term, geopolitical factors, especially the risk of Iranian oil supply, may drive oil prices higher. Goldman Sachs estimates that if Iranian supply decreases by 1 million barrels per day, Brent prices could rise to $83 per barrel by mid-2025; if it decreases further by 2 million barrels per day, prices could briefly exceed $90.

In the mid-term, Goldman Sachs pointed out that idle capacity and weak demand are the main sources of pressure on oil prices. Currently, global oil market idle capacity stands at 6 million barrels per day, particularly as OPEC+'s production increase plans will become a significant constraint on oil prices.

"If OPEC+ cancels production cuts before 2025, we estimate that by the end of 2026, Brent crude oil prices will fall to $61 per barrel."

Additionally, if the U.S. imposes a 10% across-the-board tariff on global imports, global GDP and oil demand may decline by 1% each, and oil prices could drop to $64 per barrel.

To address this asymmetric risk, Goldman Sachs recommends profiting through time spread trading, that is, going long on Brent futures from May to June 2025 while shorting contracts for the same period in 2026.

Natural Gas: A Game of Short-Term Tightness and Long-Term Surplus

In the natural gas market, Goldman Sachs' analysis focuses on the cyclical contradictions of supply and demand.

Delays in new liquefied natural gas (LNG) projects and the possibility of a cold winter lead to upward risks in the European natural gas market in 2025. Goldman Sachs raised its forecast for European TTF natural gas prices from €34 per megawatt-hour to €40, but still below the current market's forward prices.

In the long term, global LNG supply is expected to increase significantly after 2027, at which point the market may face severe oversupply. Goldman Sachs predicts that by the end of 2027, European TTF natural gas prices could drop to €20 per megawatt-hour, forcing the power generation industry to accelerate the switch from coal to natural gas to absorb the excess supply.

Base Metals Outperforming Black Metals

In other commodities, Goldman Sachs expects that due to China's stimulus policies, demand for copper and aluminum will be stronger than for iron ore. The average price of copper is expected to be USD 10,160 per ton in 2025, aluminum at USD 2,700 per ton, while iron ore prices may slightly decline to USD 95 per ton.

"The recovery of new energy vehicles and home appliances indicates that the trade-in program for consumer goods has driven the demand for base metals, and any capital expenditure stimulus for the power grid is likely to further boost the demand for base metals."