As regulators question practices in the vaguely regulated commodities industry, the world’s largest investment banks have axed their commodities divisions or sold off their assets in an attempt to ramp up activity in more profitable endeavors. This week, Barclays were the last bank that looks to get out of the commodities space.
However, Goldman Sachs aims to keep holding commodities within their portfolio. The predominant investment bank said that commodities offer a way to diversify portfolios along with equities and fixed-income.Goldman has held a strong bearish position on commodities, such as gold, but attain that commodities still offer protection against inflation. “Given our expectation that global growth will continue to improve over the next few years, leading to a shift into an expansion phase for the business cycle, we expect the appeal of holding commodities to continue to improve,” said analysts Damien Courvalin and Jeffrey Currie.
A report from the two Goldman analysts laid out a case that having commodities within portfolios made since for hedging purposes. With central banks maintaining a low interest rate environment for an indefinite period of time and ongoing quantitative easing, the risk of inflation is still relevant.