Monday, April 18, 2011

Is the commodity bull run on its last legs?


Goldman Sachs certainly thinks it is time to sell. So should investors bank some of the stupendous profits they have made. 

The commodity bull has shown little sign of running out of steam – until now. Prices began to stumble as soon as a note from Goldman Sachs, the American banking giant, whizzed around trading desks across the globe last week.
The broker advised clients to close its profitable "CCCP" play, which involved investing in a basket of crude oil, copper, cotton, platinum and soybeans. The commodities team, led by Jeffrey Currie, argued that after gaining 25pc since December, the risks to the trade had changed.
"Although we believe that on a 12-month horizon the CCCP basket still has upside potential, in the near term risk-reward no longer favours holding these assets and we are recommending closing the position," Goldman said.
Commodities traders read this as the investment bank calling time on commodities for the time being. Goldman said that even though it was closing copper and platinum trades, "the structural supply-side story remains intact, and we would look for new entry points" – or, in other words, buy again if the price falls.
Tens of thousands of investors have piled into commodities in recent years, spurred on by stupendous returns – funds such as JPMorgan Natural Resources and BlackRock Gold & General have proved popular. However, the move by Goldman Sachs raises the question: is now the time to take profits?

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