Investors should increase commodity allocation in an era of inflation, and commodity prices could rise another 40 percent from record levels, according to JPMorgan Chase & Co research, Mining.com reported, citing Bloomberg.
Strategists led by Nikolaos Panigirtzoglou argue that while allocations are above historical averages, they are still high, suggesting that raw materials have room to run.
Prices for everything from oil to wheat have risen since the conflict, with many hitting record highs last month. That has added to already high global inflation, and the Fed has responded more forcefully, prompting investors to weigh rebalancing their portfolios of assets between stocks, bonds and raw materials.
On April 6, jpmorgan strategists wrote in an investment note that "in the current environment, inflation hedge demand is rising and it is clear that global long-term commodity allocation will eventually exceed 1% of total financial assets to a new high." All else being equal, "that means commodity prices have 30-40 per cent more room to rise from here".
Commodity prices have risen across the board this year, led by increases in energy, metals and grain prices. Brent crude, the global benchmark, rose more than 30 percent to its highest level since 2008 last month.
Among the big banks, Goldman Sachs has been bullish on raw materials prices, especially as a hedge against inflation. On April 7, Goldman Sachs warned that a global copper market shock is inevitable.
This is not the first time Goldman has warned. In February, Goldman Sachs called for a "shortage cycle" in the copper market, with global inventories likely to fall to 200,000 tonnes by year-end, just three days' supply of the metal.
Goldman sachs notes that copper supply and demand have shown "extreme reversals", with global exchange-traded copper inventories in March showing "seasonal declines rather than rises" for the first time in a decade.
The bank doubled its copper shortfall forecast for this year to 374,000 tonnes and forecast it would widen over the next two years.
"Without a realistic and effective buffer, we believe higher copper prices are inevitable: on the one hand, there needs to be a significant increase in scrap copper supply, on the other hand, there needs to be a reduction in market demand."
"Despite these positive factors of market tightness, copper price gains have been limited so far this year and positioning has not changed much, providing opportunities for investors to go long."
Copper prices have fallen since the international price breached $5 a pound ($11,000 a tonne). The all-time intraday high set on March 7 was driven by a fall in copper inventories to a record low.
Goldman also raised its three -, six - and 12-month copper price targets, forecasting a new high in three months and a climb to $13,000 a tonne within a year.
