Why are Goldman Sachs bullish on commodities

Expectations for a decreased oil supply, potential Chinese stimulus and political uncertainty are buoying hopes for gains in the commodities sector, according to Goldman Sachs.

Jeff Curries, global head of Commodities Research at Goldman Sachs, told CNBC on Wednesday that the bank is bullish on commodities oil and gold for several reasons, ranging from the Federal Reserve signalling it will hike rates less aggressively than expected and a weakening dollar.

"We're bullish on commodities," Goldman's Currie told CNBC's Joumanna Bercetche. "One, because you don't have the rising (interest) rates anymore and in fact, they've come off and they're on pause. Two, the dollar's really strong and likely to weaken from here as opposed to strengthen like it did last year." A weaker dollar makes oil more attractive as oil is denominated in dollars.

Oil markets got a welcome boost when OPEC and its friends decided to cut supply again in December, another push is coming from news of Chinese economic stimulus that could propel demand. Oil prices rose 3 percent overnight on expectations that production cuts will tighten supply. On Wednesday midday, Brent futures stood at $60.37 per barrel and WTI at $51.70.

Currie added that a predicted rise in Chinese demand and falling global oil supply also added to the bullish outlook for oil.

"China has given notice that it's stimulating (its economy) and then you have OPEC ready to cut production," he said, speaking to CNBC at Goldman's global strategy conference in London.

China's central bank injected a net 560 billion yuan ($83 billion) into the banking system on Wednesday, the highest ever recorded for a single day, in a sign that it's willing to inject liquidity into a slowing economy. Chinese economic growth is driving higher oil demand.

Source: CNBC

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