Goldman: Stronger dollar unlikely to derail bullish view on commodities

FILE PHOTO: A U.S. Dollar note is seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration/File Photo

(Reuters) - Goldman Sachs said a stronger dollar is unlikely to derail its bullish view on commodities, which are likely to find support from physical shortages.

The dollar has been lifted by a stronger-than-expected U.S. economy, the world’s largest, and that’s a positive sign for global growth, the U.S. investment bank said.

The U.S. dollar index .DXY has lost more than 1 percent this week, but this follows months of strong demand over U.S.-China trade-related tensions, as investors bet the greenback would gain at the expense of riskier currencies. [USD/]

“The risk aversion this summer created significant emerging market destocking, particularly in China, as consumers attempted to avoid a strong dollar and tariffs by liquidating inventories,” Goldman said in a note dated on Thursday.

A stronger greenback makes the purchase of dollar-denominated international commodities more expensive for holders of other currencies, making buyers and users more likely to draw on any stored materials in preference to imports.

“This liquidation, however, has a physical limit with Chinese destocking having already created significant increases in physical (premiums) for oil and metals – a sign of physical shortages.”

Going forward, oil had a strong fundamental outlook helped by U.S. demand growth, supply losses and disruptions, and still constrained U.S. shale output, Goldman said.

The bank said its near-term Brent crude oil price LCOc1 target remained at $80 a barrel.

The bank said it was moderating its bullish view for gold due to a sell-off in emerging markets, and it lowered its 12-month price forecast for the metal to $1,325 per ounce, down from $1,450 and ounce earlier.

Reporting by Vijaykumar Vedala in BENGALURU; Editing by Tom Hogue