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Goldman Expects Bull Market For Commodities In 2021: Gold to Hit $2300

Goldman Expects A Structural Bull Market For Commodities In 2021, Sees Gold Hitting $2300

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This article was originally published by ZeroHedge.

Goldman Expects A Structural Bull Market For Commodities In 2021, Sees Gold Hitting $2300 Tyler Durden Thu, 10/22/2020 - 12:00
A weaker U.S. dollar, rising inflation risks and demand driven by additional fiscal and monetary stimulus from major central banks will spur a bull market for commodities in 2021, Goldman's chief commodity strategist Jeffrey Currie said on Thursday, also predicting that "all commodity markets are in, or moving toward, a deficit with inventories drawing in all but cocoa, coffee and iron ore." The bank, which notes that markets are increasingly concerned about the return of inflation, forecast a return of 28% over a 12-month period on the S&P/Goldman Sachs Commodity Index (GSCI), with a 17.9% return for precious metals, 42.6% for energy, 5.5% for industrial metals and a negative return of 0.8% for agriculture. A key catalyst for the bank's bullish call is that "nearly all commodity markets are in, or moving toward, a deficit with inventories drawing in all but cocoa, coffee and iron ore." As Currie adds, "such broad-based deficits are usually only seen late in the business cycle, underscoring the unique environment markets are in. Given that inventories are drawing this early in the cycle, we see a structural bull market for commodities emerging in 2021." In the strategist's view, the bull market will be driven by three major themes:
  1. structural under-investment in the old economy,
  2. policy driven demand and
  3. macro tailwinds from a weakening dollar and rising inflation risks. "These drivers remain consistent with the bank's bullish views from the start of this year, and have now been intensified by COVID-19 disruption and the subsequent global policy response."
Some more thoughts from Currie on the tightening in commodity markets:
Commodity markets have been mostly range bound since this summer, in our view caught between a longer-term bullish outlook for 2021 and near-term concerns around the timing of a vaccine amid rising COVID cases across Europe and the US Midwest (see Exhibit 4). However, it is important to emphasize that nearly all commodity markets are in, or moving toward, a global deficit with inventories drawing in all but cocoa, coffee and iron ore. Such broad-based deficits are usually only seen late in the business cycle,underscoring the unique environment markets are in. As global demand remains tepid for consumer-related commodities like oil, the deficits further underscore how significant the drop in supply has been and how the supply response function has changed. For oil, the sharp drop in capex is now having an impact on non-OPEC decline rates, with capital markets refusing to fund shale drilling, only debt rollovers. In metals, we have seen a sharp drop in maintenance capex and supply disruptions dragging into 2021. This suggests that even if demand falters in coming weeks as winter exacerbates COVID-19, markets will likely continue to rebalance, barring an outright collapse in demand. In our view, base metals and agriculture have more near-term upside than oil, with smaller inventories to move through before prices begin to rise.
Goldman then shows the following chart which reveals the growing deficit across key commodities, as well as the key macro catalysts for higher commodity prices in coming months: Hedging that even if demand falters in coming weeks as winter exacerbates COVID-19, Goldman still expect markets will continue to rebalance, "barring an outright collapse in demand." Goldman takes a more contained view on energy saying that while inventories of oil remain high, "upside in energy prices will likely come after winter." However, non-energy commodities face immediate upside as balances have tightened ahead of expectations, driven by large Chinese demand and adverse weather shocks, according to the Goldman strategist. Focusing on Gold, Currie said that expansionary fiscal and monetary policies in developed market economies continue to drive interest rates lower and create demand for hedging the tail risks of inflation, lifting demand for precious metals. As a result, Goldman forecasts gold prices at an average of $1,836 per ounce in 2020 and $2,300 per ounce in 2021, and expects silver prices to be at around $22 per ounce in 2020 and $30 per ounce next year. Non-energy commodities could see an “immediate upside” as the market balances tighten ahead of expectations on strong demand from China and weather-driven risks, the Goldman Sachs analysts said. The bank maintained a “neutral” view on commodities in the near term and “overweight” in the medium term.

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Economics

Elevated Inflation May Remain Longer Than Central Banks Let On

The Organization for Economic Co-operation and Development (OECD) released its 2021 summer outlook which suggests that elevated levels of inflation may stick around longer than central banks have let on.
The post Elevated Inflation May Remain Longer…

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The Organization for Economic Co-operation and Development (OECD) released its 2021 summer outlook which suggests that elevated levels of inflation may stick around longer than central banks have let on.

The intergovernmental agency for advanced economies revised Canada’s inflation forecast higher and not a little either; they now see double the rate of expected inflation next year. The agency further warns the risk is to the upside, potentially indicating more to come.

Elevated Inflation Is NOT A Global Story

High inflation isn’t the universal story presented in Canada and the U.S.. Researchers observed elevated levels in just a few countries, such as Canada, the United Kingdom, and the United States. Other advanced economies, such as those in the EU and Asia, are suffering from low inflation.

Canadian Inflation Forecast Revised Much Higher

Canada’s inflation forecast got a big revision higher with the, as the OECD agency now expects 3.1% annual growth to the consumer price index (CPI) of Canada in 2021, an increase of 0.3 points from the previous forecast in May but a little lower than the headline of 4.1% last reported, implying it cools towards the winter.

OECD Headline Inflation Forecasts September 2021

Source: OECD.

The cooling doesn’t get inflation back to pre-pandemic levels though. For 2022, the forecast climbed to 2.8% annual growth, up 1.4 points from the previous forecast. Yup, the forecast rate of growth doubled for next year, after just a few months.

Inflation Risks Are To The Upside As Economies Re-Open

Elevated inflation problems might not end there, with the risks slanted even higher. Analysts warn if pent-up demand is higher than expected, prices will climb further…

Big factors behind the rise of inflation are commodity prices, shipping, and labor. Commodity and shipping prices tend to trickle into the cost of almost everything. The OECD expects this to continue to contribute to inflation through next year. They believe that will be true, even if the cost of those inputs don’t rise further.

Inflationary Wage Gains To Deal With Job Vacancies Can Make High Inflation Sticky

A labor shortage is one of the biggest problems with job vacancies soaring. This can lead to a wage squeeze, which is a non-productive increase in salaries. If non-productive wage growth boosts inflation further, they see less transitory inflation. It’s harder to roll back salaries than it is to pass on costs to consumers.

Is higher inflation still transitory? Sure. Everything is transitory on a long enough timeline. Elevated inflation for more than two years, with risks increasing, means it may not be a short-term issue.

The OECD suggests easy money policies should last as long as needed for recovery. Central banks should publicly communicate where they’ll draw the line though. If something isn’t very effective and hurting the public more than helping, it’s time to review whether macro tools are what’s needed.

Editor’s Note:  The original article by Daniel Wong has been edited ([ ]) and abridged (…) above for the sake of clarity and brevity to ensure a fast and easy read.  The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.  Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor. Also note that this complete paragraph must be included in any re-posting to avoid copyright infringement.

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The post Elevated Inflation May Remain Longer Than Central Banks Let On appeared first on munKNEE.com.

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Economics

Are Penny Stocks on Your Watchlist? If So, Check These 3 Out

Are you making a penny stocks watchlist for next month? Check these three out for your list
The post Are Penny Stocks on Your Watchlist? If So, Check These 3 Out appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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3 Penny Stocks For Your October 2021 Watchlist 

With October right around the corner, those who invest in penny stocks are working to get ahead. One of the best ways to do so is to create a watchlist that aligns with the current state of the market. And in 2021, there are plenty of factors to keep you on your toes. The most obvious of these right now is Covid. While cases are declining in many areas around the world, the pandemic is still top of mind for investors. 

[Read More] Do These Penny Stocks Deserve a Place On Your Watchlist?

This means that it is still creating panic and major uncertainty in the market which is illustrated by the high volatility we are witnessing. While this week got off to a less than stellar start, we have seen bullish sentiment begin to resume in the stock market. And as a result, there are plenty of penny stocks that could be worth keeping an eye on. Of course, research will always be your best friend in the stock market. 

However, investors should carefully watch for any speculative events or news that can come into play. Because penny stocks are highly speculative, small or large events can trigger major movements in value. Considering all of this, let’s take a look at three penny stocks to watch in October 2021. 

3 Penny Stocks to Watch in October 2021 

  1. Meten Holding Group Ltd. (NASDAQ: METX
  2. NexGen Energy Ltd. (NYSE: NXE
  3. Regis Corporation (NYSE: RGS

Meten Holding Group Ltd. (NASDAQ: METX)

Meten Holding Group Ltd. is a penny stock that we have been discussing frequently due to its sizable movements in the past few days. Despite a 40% drop in value in the last month, it looks like shares of METX are beginning to see bullish sentiment. You may have heard us talk about this company as Meten EdtechX Education Group Ltd., however, the company changed its name last month. This is a company that provides English language training services in China. Its adult and junior ELT services are offered under the Meten, ABC, and Likeshuo brand names.

On September 7th, the company closed a $60 million underwritten public offering of ordinary shares. It also completed pre-funded warrants to purchase ordinary shares. This offering included 22,500,000 of its ordinary shares at a price of $0.30 per share. Also included in this offering were 177,500,000 pre-funded warrants. Meten plans to use the net proceeds for capital expenditures and general corporate and working capital needs. Aegis Capital Corp. was the sole book-running manager for this offering. It will be interesting to see what specifically Meten uses this new capital for. 

While its drop in value as a result of new Chinese legislation is disheartening, many Chinese education stocks have begun to bounce back. Noting this information, will METX stock make your penny stocks watchlist next month?

NexGen Energy Ltd. (NYSE: NXE)

NexGen Energy Ltd. is an energy penny stock that has made some major strides in value in the past year. Over the last six months, shares of NXE stock have climbed by over 37%. In the past YTD and twelve-month periods, those numbers jump up to over 80% and almost 200% respectively. For some context, NexGen Energy is a uranium exploration and development stage company based in Canada. The company acquires, explores, and evaluates various uranium properties. Its main asset is the Rook I project which has 32 contiguous mineral claims that total 35,065 hectares of land.

[Read More] Top Penny Stocks To Buy The Dip According To Analysts In September

In July, the company announced the commencement of its 2021 field and regional exploration drilling programs at the Rook I property. This property hosts various electromagnetic conductors and structural corridors that have yet to be explored. The reason that they have not been explored is due to NexGen’s focus on developing the Arrow Deposit. The company believes that all of the new target areas show similar geophysical characteristics to Arrow.

“Recommencement of field activities incorporating regional exploration whilst simultaneously advancing the Rook I Project through final engineering and permitting is an exciting time for NexGen.”

CEO of NexGen, Leigh Curyer

Since this update was released, NXE stock has gone up in market value significantly. And, over the past few weeks, the average trading volume for NXE stock has shot up dramatically. Keeping this in mind, will NXE be on your list of penny stocks to watch next month?

Penny_Stocks_to_Watch_NexGen_Energy_Ltd._(NXE_Stock_Chart)

Regis Corporation (NYSE: RGS)

In a similar case to METX, shares of RGS have not had the best year. With 44% in losses in the last month and an almost 57% drop over the YTD period, it’s tough to see why RGS stock could be worth it. However, in the past few weeks, we’ve seen bouts of bullish sentiment come in and out of RGS stock. This includes its almost 4% gain on September 22nd, and its 3.3% premarket gain on September 23rd.

If you’re unfamiliar, this company owns, operates, and franchises hair salons in various countries. You have likely heard of the brands that Regis Corporation operates its salons under. Some of these brands include Supercuts, Cost Cutters, First Choice Haircutters, and SmartStyle among others. As of June 30, 2021, the company operated 5,917 salons in total.

On August 25th, the company reported its fourth-quarter and full-year results for 2021. In addition, Regis announced the completion of its transformational phase and continued progress on its key foundational initiatives. Regis’ nominal sales continued to improve during this time period, and its system-wide sales during this period rose 4.2% year over year. It’s clear that Regis has been and still is being affected by the pandemic. But, with higher vaccine rates, more people could begin to go out and resume their hair care routines. For this reason, many put RGS stock into the reopening penny stocks category. 

President and CEO of Regis, Felipe Athayde said, “While we are still feeling the effects of the pandemic, Regis is well-positioned heading into fiscal year 2022 due to our achievements during a time of unprecedented challenges in fiscal year 2021.”

In the past few days, volume for RGS stock has been much higher than its market average. This could indicate the heightened popularity that the company is seeing right now. Considering all of this, is RGS going to make your list of penny stocks to watch this week?

Penny_Stocks_to_Watch_Regis_Corporation_(RGS_Stock_Chart)

Are Penny Stocks on Your October Watchlist?

If you’re making a penny stocks watchlist for October, there are plenty of things to consider. With economic inflation, Covid, and geopolitical ups and downs all affecting the market, there’s no doubting that volatility is high.

[Read More] High Volume Penny Stocks to Buy Now? Take a Look At These 3

But, with great price movements comes a great chance of making money with penny stocks. However, knowing how to do so depends on your level of trading expertise and your commitment to finding all the information you can. Considering all of this, are penny stocks on your October watchlist?

The post Are Penny Stocks on Your Watchlist? If So, Check These 3 Out appeared first on Penny Stocks to Buy, Picks, News and Information | PennyStocks.com.

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Economics

The Outlook for Starbucks as Economy Reopens

Leading roaster and retailer of specialty coffee, Starbucks Corporation (SBUX), reported solid fiscal third-quarter results last July, and is expected to report fourth-quarter results on October 22. As the global
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Leading roaster and retailer of specialty coffee, Starbucks Corporation (SBUX), reported solid fiscal third-quarter results last July, and is expected to report fourth-quarter results on October 22.

As the global economy reopens, Starbucks seems to be in a good position to deliver strong earnings growth as a result of the changes the company has introduced over the last 18 months.

I am bullish on Starbucks. (See SBUX stock charts on TipRanks)

Earnings Recap

In the Americas, Starbucks reported a significant recovery of revenue in comparison to the corresponding quarter last year, clocking in year-over-year comparable store sales growth of 83%.

Operating margins expanded to 24.4% from a negative 14.4% last year as well, driven by the absence of COVID-19 related costs, business and pricing recovery, temporary government subsidies, and the benefits of store transformation.

The company opened 1,175 net new stores in the last 12 months, and a 10% favorable impact from foreign currency translations contributed to strong international net revenue growth.

Expanding Through Partnerships, Innovation

The company expects to open 1,100 new Starbucks stores worldwide in Fiscal 2021.

The Global Coffee Alliance, the partnership between Starbucks and Nestle (NSRGY), provides the latter perpetual rights to market Starbucks products globally outside its coffee shops, and this partnership has helped Starbucks expand its global reach in terms of new geographies, and new channels.

This partnership covers many products and brands, such as Nespresso, Seattle’s Best Coffee, Teavana, Torrefazione Italia, and more.

This alliance has helped Starbucks become a popular brand in under-penetrated regions such as Asia, and was instrumental in helping Starbucks end the last fiscal year as the No. 1 coffee brand in the world.

Ready-to-drink Starbucks products that are not covered by the above alliance witnessed double-digit growth in EMEA and China in the last quarter, whereas the North American coffee partnership with PepsiCo, Inc. (PEP) led to a 19% growth in consumption.

These numbers suggest that Starbucks is executing its partnership strategy over and beyond expectations to drive revenue and earnings growth, which will be a catalyst for growth in the post-pandemic era as well.

Starbucks is continuing to innovate in fast-growing categories such as Cold Brew, Draft Nitro beverages, and plant-based modifiers such as almond, coconut, and soymilk alternatives.

The company’s Reserve Roastery in Seattle is another splendid innovation, where customers can experience a working roastery connected to a café.

Starbucks also collaborated with Beyond Meat last year to rollout a plant-based menu available at more than 3,300 Starbucks locations in China, taking advantage of the growing popularity of plant-based products. The company is on the verge of introducing plant-based sandwiches in Canada as well.

In China, Starbucks now has more than 5,100 stores, and is planning to hit 6,000 stores by the end of the year. In the most recent quarter, the company launched its flagship store on JD.com (JD) as well, which is one of the most popular e-commerce platforms in mainland China.

Wall Street’s Take

Based on the ratings of 17 analysts offering 12-month price targets, Starbucks stock comes in as a Moderate Buy. The average SBUX price target of $132.14 implies 16.3% upside from the current market price.

Bottom Line

Starbucks is continuing to expand its presence in global markets through partnerships, and the company maintains an unwavering focus on upgrading its menu as well.

Both these initiatives are likely to help Starbucks report a strong uptick in revenue once mobility restrictions are fully lifted in every corner of the world. The post-pandemic era looks promising for Starbucks, and its stock price is likely to follow earnings in the long run.

At the time of publication, Dilantha De Silva did not have a position in any of the securities mentioned in this article.

Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

References

FQ3 earnings call transcript: https://s22.q4cdn.com/869488222/files/doc_financials/2021/q3/SBUX-Q3-2021-Earnings-Call-Corrected-Transcript.pdf

Menu innovation: https://stories.starbucks.com/stories/2020/plant-based-menu-innovation-at-starbucks/

Global Coffee Alliance: https://stories.starbucks.com/press/2018/starbucks-and-nestle-form-global-coffee-alliance/

Starbucks launches on JD: https://jdcorporateblog.com/starbucks-launches-flagship-store-on-jd-com/

FQ3 earnings release: https://investor.starbucks.com/press-releases/financial-releases/press-release-details/2021/Starbucks-Reports-Record-Q3-Fiscal-2021-Results/default.aspx

The post The Outlook for Starbucks as Economy Reopens appeared first on TipRanks Financial Blog.

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