Although Goldman Sachs is optimistic on gold prices this year, the investment firm sees the most potential in copper.
In its latest research, led by commodity analyst Matthew Korn, Goldman said that it is bullish on copper as the market faces impending supply issues. For this reason, analysts see mining giant Freeport-McMoRan (NYSE: FCX) as a good investment. The bank has a price target of $23 within the next year, a nearly 23% increase from current share price at $18.75 per share.
“Copper miners continue to warn of impending deficits, but now the reckoning is 1-2 years away, not 7-8, and the ‘wall of supply’ has largely come and gone,” the analysts said in a report. “Mining giant FCX offers the highest exposure to copper, the metal for which we see the most upside pricing risk.”
Korn's team also liked Teck Resources (NYSE: TECK) because of the bullish copper outlook but didn’t provide a rating for the company in its report. The analysts noted that among individual miners, TECK is currently trading the most below its historical range.
Not only does Goldman like copper, but the firm also expects that North American companies offer investors the best value.
“Looking at the set of global comparables and consensus estimates, the U.S. stocks trade slightly cheaper than their [rest of world] peers,” the analysts said.
However, despite its optimistic outlook, the investment bank said that the sector is not without risk. The global economy is expected to continue to grow, with Goldman calling for global GDP to expand 4.1% this year. But, the bank’s economists have warned that this could be as good as it gets.
The bank also sees growing geopolitical risks as a potential drag on the commodity sector and in turn on miners.
Goldman also reiterated its bullish outlook on the broad commodity sector as analysts expect prices to rise as interest rates increase as a result of growing optimism regarding coordinated global economic growth.
“A rising rate cycle driven by mature growth has historically been positive for commodity prices – we have found that it has also been good for the M&M stocks,” the analysts said.
Although Goldman sees copper with the best potential within the next year, the firm is also bullish on gold. Last month the firm increased its 12-month forecast for gold, expecting the metal to rise to $1,450 an ounce.
Analysts said that they are optimistic about gold as emerging-market growth picks up, leading to higher consumer demand for the yellow metal.
“The ‘normal’ relationship would say that gold has to go lower as real rates rise, since as a non-yielding asset there is less reason to hold gold in a higher rate environment. However, as EM growth has recovered, so has their gold demand, leading to an upward level shift in the equilibrium gold price,” the analysts said in a February report.
While Freeport is known as the world’s largest publicly traded copper producer, it also has a significant gold portfolio. Last year the company produced 1.577 million ounces of gold. The company expects to sell 2.4 million ounces of gold this year.