Jan. 25 (Bloomberg) -- Goldman Sachs Group Inc. raised its forecast for commodities returns "due to sooner-than-expected backwardation in many commodity forward curves."

Goldman increased its 12-month forecast for the Standard & Poor's GSCI enhanced total return index to 18.6 percent, analyst Jeffrey Currie wrote in a report dated yesterday. Goldman is neutral on commodities in the "near term" after prices rose in December. The forecast was 18 percent in December. Backwardation is a market in which the contract closest to expiration trades at a price higher than longer-dated futures.

"Driving this return is not only cyclical commodities like oil and copper, where we maintain very positive medium-term views, but also the agriculture and livestock sectors," Currie wrote in the report.

In December, Goldman raised its 12-month forecast for the index to 18 percent from 16 percent, mostly because of changes to agricultural estimates. Energy will advance 22 percent over 12 months, followed by 20 percent in industrial metals and 17 percent for precious metals, Currie wrote. In December, Goldman predicted precious metals would lead gains.

Gold has fallen from its leadership role in commodities for the first time since mid-2009, giving way to cyclical commodities such as oil and copper, the report said. Goldman remains bullish on cyclical commodities, Currie said. Oil futures gained 15 percent in 2010 in New York trading, and copper surged 33 percent.

That "highlights the substantial changes that have occurred in the global financial landscape in recent months as the U.S. economic recovery has shifted onto a much more solid footing," Currie wrote. "This shift is central to our view for 2011, as we expect cyclical commodities to enter a bull market, augmenting the bull market in agricultural commodities that began in 2010."

David Fuller's view Fullermoney has maintained a cautious view towards gold bullion (monthly, weekly & daily) since it became overextended in November relative to its medium-term trend mean represented by the rising 200-day moving average. It subsequently lost upward momentum, encountered selling pressure above $1400, including a key day reversal following the high to date, eroded minor support levels and is currently in its fourth consecutive week of a corrective phase.

This pullback has affected sentiment towards silver (monthly, weekly & daily) recently - note that weekly key - and can weigh on a number of other commodities as well. Fullermoney remains a long-term bull of gold but we have also pointed out that it had become a crowded trade. Sentiment towards gold has bordered on fanaticism in some instances, and bullion faces increasing competition from other assets in a recovering global economy.

While there is a good chance that gold will encounter support near its 200-day moving average shown on the weekly and monthly charts above, commodity investors need to be aware of a new obstacle in the supercycle's path.

This is the Commodity Futures Trading Commission (CFTC) enquiry into commodity speculation, announced on 13th January, when I also used it as Fullermoney's lead item. This review to be conducted for six months is already controversial and the outcome unknown. Although political influences aside, the CFTC is very likely to be influenced by the amount of speculation evident in commodities over the next few months.


The big investors/speculators in commodities will know this and may therefore choose to reduce their exposure to the sector. This is particularly likely if food prices remain a serious concern, as is likely. Socially responsible people, particularly those representing high-profile institutions such as university endowment funds, will not want to be associated with food shortages in poor countries.

The bottom line regarding the CFTC enquiry: to the extent that it is an influence, it will not encourage people to increase their commodity exposure, but it might cause them to reduce it, at least until prices fall back and/or any policy changes have been assessed.