Tempering Commodities Optimism

Recent Optimism about Commodities Goes Too Far. We have noticed a growing optimism about the near-term path of many commodities prices. A recent example is Goldman Sachs, which cites an overvalued dollar, a more dovish Fed, Chinese stimulus, and tightening oil supplies as favoring commodities in 2019. We are not unsympathetic to their view, and we have recently written that oil and precious metals, in particular, enjoy short-term upside. We also agree that the dollar is overvalued (Figure 1 shows the BIS estimate of the real broad dollar exchange rate which controls for inflation) which, if it corrects, will boost many commodities prices. We also think that slowing global growth is likely to benefit the short-term prospects for many precious metals.