This is exchanged Goldman Sachs words, Gus developments currently shaping markets industries in the global economy, objects you go ahead of corporate communication to defer today were joined by Jeff global head of commodities, research for Goldman Sachs Research, just one of our most frequent guess, always a pleasure to have him on women. Talking about the twenty twenty one outlook for commodities ball run Jeff, welcome, back Thanks for having me Jane, said in your outlook? Peace for next year? You said you expect a structural bore market led her commodity prices and subsequently higher inflation. Big picture. What's behind that thesis must start the idea that the back scene is a tactical upside for commodity prices, as we see the normalization inactivity next year, the pandemic,

get self is a structural handlers? and what do I mean by that is who bid is a social crisis which has shifted policy towards accommodating social need in that This policy will be directed at lower income households that consume much more. The stimulus Assume far more, commodities because they outnumber the higher income, households, this stands in sharp contrast to the period the financial crisis, which was a financial crisis about these stability in the financial system itself and stimulus was directed at solving this banking crisis, which, in turn, created a wealth of fact, the wealth, the fact basically benefited higher income. Households who have very low, marginal propensity to consume and did not

cinema lotta commodities. So this is really the structural ship in ITALY, body in three The aims that we see dominating next year and likely the next three to five or even ten years. The first theme is, actual under investment in supply, the second seem is social policy driven demand and then the third ie is a macro tail. When so must stop with the first theme up structural under investment. This, is very similar to a theme we were telling. Two decades ago we called it the revenge, the old economy, meaning that the new economy stalled capital from the old economy in restricted its need to grow supply. This time, instead of being the dot com, it's the banks then, you overlaid negative oil prices earlier this year on top of that under investment, and then you overlay e g concerns. On top of that, you end

with a forty percent decline in oil cutbacks during the first half of this year, that is unprecedented, but it's just not limited while we see it across the board metal mining agriculture in the entire old economy. So that's the one number two polish. He driven demand. Obviously, the big one is the green infrastructure. Green cutbacks to solve climate change, but there's So the redistribution of policies coming out a covert itself. They're not gonna disappear, but the I see in the second quarter of next year the likely can you for several more years, but none of that is. It creates an investment cycle. I can't what we saw out of China, the two thousands Anders three legs to this end Smith cycle. There's the green cap acts. There's the registry

national policies and then there's also resilience in supply chain to do, Gee networks around the world. We have a replica Dave manufacturing production, supply chains due to the trade war. So all this creates a cap acts boom. On par with what we saw with the bricks during the two thousand or even the nineteen Seventys, the third which is the macro tail. When really Is this idea of a weak dollar Bush commodity prices higher, but, let's remember commodity prices reinforce a weaker dollar the NAFTA. That is you get this positive feedback loop that reinforces tire commodity prices, which what we saw play out in the teen seventies as well as the two thousands The bottom line is like to argue: is this ship is already sailor? You want to say the train is left the station. We wanted. The dollar is broke mould. Year trend mines?

Reserves outside in the emerging markets are already rising sharply nasty to a surge in global trade. More recently, metals price our region in a multi year highs? At the same time, oil has already breach fifty dollars a barrel. All this suggests this stuff. Global market is already under way, so the book gets under way in many ways. How do you I can say that with what is still feels, at least in the? U S like a pretty weak macro environment amidst the second surge or third serve covered commodities, just looking through the spikes that were seeing right now in alarm, developed markets in the same way the equity market is. It really depends upon the commodities if you separate, the commodities been most severely impacted by covered primary the oil because it sits at the centre of Social contact and globalization. You suffer oil from

all the other commodities that are best meant type commodities like copper iron or what you find is it the fundamentals for not oil commodities are bare strong right now, inventories are quite low. Demand is quite high in China has been focused on infrastructure incomes. Action there stimulating those two parts of the economy and thus not for Now, most people sitting at home are being the web, Dewey die why projects purchasing goods, physical goods, offer the internet through Amazon and as a result, which is what's driving global trade right now. In the U S, durable goods can Option is up fifteen percent your ear, and so what suggest is that it, commodity is solid in you can touch it. You wanna be long it today, it doesn't have to see through anything, as the fundamentals are very strong. In contrast, it liquid, like oil yeah. Trying to look through really

hi inventories and what's keeping it supported right now with OPEC production cut, which taken supply off the market in allowing inventories to draw bottom line issues? I have not seen this before in my twenty five year. Career is Every single commodity market is in a deficit today, meaning The man exceeds supply. That is a very rare dynamic, which underscores the structural shifts in both supply and demand that are currently under way. A little more about a oil oil. A great topic has been quite the year for prices. We saw negative prices, at least in some markets earlier this year and then see come back recently. What do you think the market looks like over the core? the twenty twenty one adverse is waiting to be sluggish because you have to draw down the high inventory levels, but people like to call

oil, the vaccine trade. Why? Because jet fuel represents most of that demand, weakness and once the vaccine starts to take, all people will likely get. Back into the plains and start to fly again. That will begin to heighten the market and allow OPEC to bring them spare capacity back on line again. The other net of this between the OPEC production cuts Nano pact, pretty Action decline is due to that revenge of the old economy story. We were just talking about combined that the vaccine improvement in jet fuel. The man can create the deficit to really draw inventories of memory built up a large amount of cemeteries over course of the last nine months or that period when New Kobe was at its greatest point back in that period between in June Women tories are drawn down. We think they normalize sometimes in the third quarter, at which point, as you go into the fourth quarter, is when we see the real upside, an oil our target

the next year is sick. Five dollars a barrel. I want to emphasise that higher than the cost basis for reasons for the higher price is that these producer Wilma like we have access to capital markets and have to drill a cash love, something we have seen in many years, one of the reasons they won't have access to capital markets is due to the vote report returns that the sector has face over the course of the several years. So the none of this is near term you got a deal with those high inventories, which means as market probably trades highways, but one inventories or normalized. Then you can to the outside in the upside is likely to make much higher than might be seen in the previous period, just because these producers need a drill out a cash flow as opposed to having access to the subject EU pre bullish on both gold and silver, how investors, thinking about safe haven assets near you sooner risk on trade generally across the board, so why people foolish on old silver

very near germ as you point out, with the other risk on dynamic, it does create downside risks to the precious metals complex, we think that would likely be temporary. What the man it needs to see- is improve a pricing pressure, inflationary typewriters, we're not talking rapid inflation ya, some evidence that, as the economy begins to recover the sex quarter of next year that they be and to see. Those pricing pressures and theirs We dynamics, we think that are gonna be applied. First is what we call the fear demand for gold and silver. This is dr low a real interest rates in the developed markets, and the reason we think that requires real Evelyn. Of inflationary pressures. It the FED, keeps nominal rates. Where they are right now, inflationary pressures began to rise that drives down real rates which turn drives of gold and Silver LISA dynamic is what we call, whilst the man

physical demand for gold. In the emerging markets like China and India, that's pretty see by the? U S: diving have strong demand road outside of the: U S that helps create weaker dollar environment. The improved the purchasing power, these emerging markets in they buy more goal. Third Dynamic is inflationary care risks, really being driven by the income his policy and again green infrastructure dream cap acts really sit at the centre of this policy: having demand and when we think about solar panels in silver important, to remember that twenty percent of industrial demand for sober comes from solar panels expect She were going to see a forty percent rise in Seoul, or capacity due to them, policies and weep. The bow led to end nine. Ten percent rise and silver demand, which is really

find our borders view and servers on terms of our price targets were twenty two. Hundred on gold and thirty dollars. Announce an silver we can't go through It has to deal with that talk about crypto currency in our listeners, love to hear about crypto. What do you say? in the year had its had quite a run recently. Bodies that for twenty twenty one on the criminal from Bitcoin is definitely A commodity represents the first time you been able to take lack chronic currency off the grid, Ass, really be defining feature a bit point. We ve always had electronic currencies that differences. You can take it off the grid, which is what makes a commodity known think about the benefits are taken it off the grid there to benefits one is for doing Margaret illegal type activities are to be taken. Financial system, to an area of the world. That does not happen financial system now, women think about that. Trimmed down

nature. I've taken it off the grid for illegal purposes. Create an environment that it makes it very difficult for my anti money laundering perspective, for instance, Shall investors to invest in back my eye to point out the crypto nature. After do itself, creates a problem, for institutional investors and to all, com these issues, you need it stole the relationship with the client what you have with gold, so there we know who the past owners were says it violate any money laundering rules in some way Think about what that says. Yeah from a retail investor perspective Crypto is likely to steal demand from golden. I think you're, seeing right now today, you look gold. It has lagged its macro counterpart variables, we think part of it. As the retail demand is going into Bitcoin hour. When we look at the institutional demand, we still think it'll be isolated in the global market. The point out gold has

three thousand years entered, National arrangements have been trading for three millenniums inclined Trask Bitcoin has been trading for twelve years and doesn't have the same type of institutional arrangements Jeff recovered oil, gold, silver Crypto. What's on your radar screen goings in new year beyond those topics, I think it's really. Climate change sits at the centre of the commodity, complex, obviously, and when we think about all of these pieces really coincide around the inflationary pressures guess his green cap acts as one of the ways to solve the social need, issued, income inequality and the broader economy in He also said that the sinner these policy dynamic they have the potential to create inflationary pressures as well fire commodity prices, no way look at what are the best hedges against inflationary pressures. We want to emphasise commodity sit at the top of the list,

and the really the reason. Why is when you have an environment in which you see broad based grow level, inflation, you wanna. What's in that sepia basket in that means real assets, things we really consume and we think of oil, copper basement of those encompassing go into the production of many of those things. We consider our eye Jeff thanks for joining us today is great to cover the waterfront with you right, Experts have any. That concludes this item exchanged Goldman Sachs. Thank you for listening at you enjoy the show we hope to subscribe and apple podcast, liberating or common. June and later in the week for weekly markets up day, where leaders round the firm give a quick take and what they are watching in markets. This podcast recorded on Tuesday December fifteenth, and here too, thousand twenty. Thank you for listening.

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