HOW GOLDMAN SACHS IS TRADING THE COMMODITY MARKETS
It’s no secret that Goldman Sachs has an enormously profitable trading operation. In the most recent quarter they reported an astounding $10B in total trading and investments. This represented 81% of the firms total revenues. One of the most profitable arms of this trading operation is the commodity desk. Goldman’s commodity calls are often market moving and always noteworthy. Their latest commodity positions reflect the firm’s continued bullish outlook on the economic recovery.
Goldman is very bullish on Natural Gas. Their 3 month price target on Nat Gas is $6.50 while their 12 month target is $7.70. That is a 33% and 57% expected climb.
How to play it? Goldman likes Summer 2010 NYMEX Natural Gas futures.
In the WTI oil market Goldman has a 3 month target of $85 and a 12 month target of $94. That equals a 9% and 20% rise in oil prices. They see continued demand from China as a primary driver.
How to play it? Goldman likes a long timespread. They like buying the December 09 WTI and selling the 2011 WTI contract.
In the metals markets Goldman is surprisingly bearish on Gold and Silver. Their 3 month and 12 month price target for gold is $960. Their 3 month target for silver is $15.60 and their 12 month target is $16. This is consistent with their benign inflation expectations. They do not recommend any specific short trades on the two metals at this time. They do, however, like 2010 January Platinum.
In terms of agriculture Goldman likes Corn futures. They currently have a $4 3 month price target and a $4.50 12 month price target.
How to play it? Goldman likes the May 2010 Corn futures.
TPC – any thoughts on investing based on “public release” of these recommendations? Versus say, a passive stategy of just buying DBC 2 weeks prior? Since these recommendations are probably weeks after the preferred client huddles (maybe you are part of that)! Actually, I could back test … maybe next time you publish these could you list the date of the recommendation release.
TPC Reply:
November 3rd, 2009 at 7:02 AM
These are very recent ideas and tend to be longer trading ideas.
FWIW, GS has been in the WTI trade since the beginning of the year and is now significantly in the money. Something to keep in mind if you are thinking about opening this trade.
The long corn trade wasn’t as successful. This is actually a roll from the long May 2010 contract.
quote
“It’s no secret that Goldman Sachs has an enormously profitable trading operation. In the most recent quarter they reported an astounding $10B in total trading and investments. This represented 81% of the firms total revenues. One of the most profitable arms of this trading operation is the commodity desk.”
That just tell me how much of a gambling/manipulating house GS actually run. They lend to NOBODY but get the bank status with free interest money to gamble.
http://finance.yahoo.com/q/os?s=SPY&m=2009-11-20
look at the puts.
some interesting VIX call
40: VIXLH.X 0.90 197,448 open interest
VIXLF.X 2.35 Down 0.10 2.25 2.60 290 107,721 30.00
VIXLF.X 2.35 Down 0.10 2.25 2.60 290 107,721 30.00
TPC Reply:
November 3rd, 2009 at 8:05 AM
They’re a big hedge fund. That’s no secret.
Not surprising that their commods group did well… they acquired Commodities Corp back in the day, the legendary trading shop that produced the likes of Paul Tudor Jones, Bruce Kovner of Caxton Associates, and I want to say Louis Bacon of Moore Capital Management as well… some of the best global macro hedge funds out there. Bread ‘n butter profits.
@marketfolly
As I recall, GS was calling for $200 crude when it was hitting it’s highs in 08.
As profitable as they are, I can’t imagine they were betting on $200 crude in
their own accounts. I’ve heard more than one “suggestion” that their public
calls may not represent what they are doing with their own money.
There are a lot of indications it will be a cool winter and this will flush some of the gas out of storage (finally) – and the fact is, gas could go almost nowhere but up.
I cannot believe kenneth feinberg, pay czar left G.S. off the restricted pay program.. They were a big reason for the crash this yr.with their gambling on derivatitives. And gambling with stock holders money besides. Of course they own the gov. now,with all the appointees in the cabinet. The fall of the western empire….
10B, that is astounding. 81% of it representing their total revenue is also astounding. Matter of fact, this company should be on everyone’s list.
I think the markets are ready to take another tumble. But the dollar will also fall is what I feel.
GS is normally quite wrong. I do not think Gold will come back to 960 in a hurry. Also NG moving up is not something I rule out. The chances are it will move.
fresbee
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one thing you fail to mention is that Goldman’s prop trading desk is a different entity from Goldman’s research department. in other words, when you say “Goldman is bullish” what you’re really saying is that “this department within Goldman is bullish”.
case in point, the news recently about how Goldman was simultaneously profiting from the promotion/sale of mortgages while their trading desk was shorting mortgages!
http://www.mcclatchydc.com/100/story/77791.html
somebody correct me if i’m wrong here, but i don’t believe Goldman’s (or any) trading desk publishes forecasts like this, so i have to assume (since it isn’t mentioned) that it’s Goldman’s research arm (which works hand-in-hand with their sales force) that is publishing these forecasts.
There has been a fair amount of talk about the glut of Natural Gas on the market today and how full capacity storage could threaten us by the end of the year. This is a very interesting situation. We are running close to full capacity, yet natural gas prices refuse to go down. In fact, we have had quite a rally off the September lows, moving from slightly below $3.50 to $5.23, up just shy of 50% (November contract). So what’s going on here?
According to Matt Badiali of Growth Stock Wire, “We store natural gas in old oil and gas fields, salt domes, and even aquifers. Old fields make up the largest volume of storage, about 81% of the 8.5 trillion cubic feet of capacity. Some of those require a certain amount of gas to keep the cracks open, called “base gas.” Base gas volume remains steady around 4.3 trillion cubic feet. The remaining 4.2 trillion cubic feet of storage is for “working gas.” That’s gas available for use.
The Energy Information Administration publishes how much working gas we have in storage. As of October 9, that was 3.7 trillion cubic feet. We only have 0.5 trillion cubic feet of storage left. In other words, we’re at 94% capacity. Over the last six weeks, we added about 65 billion cubic feet per week. Unless demand changes quickly, we’ll fill up the remaining space by early December.”
So why are prices rising? Well, the number of drilling rigs is running at 726, down from 1600 in September of last year. Also, tight credit is helping to further feed the cutback in production. So, in spite of the supply situation, the current slowdown in production, coupled with a 70% drop in prices may be part of the answer.
Then there is the haunting Natural Gas to Oil ratio. In theory, based on an energy equivalent basis, crude oil and natural gas prices should have a 6 to 1 ratio. Strangely enough that hit close to 25 to 1, an obvious historical high. Currently it is running at 13.75, still 2x it’s historical.
Could the big inventories be somewhat of an illusion as traders look past the current data? I don’t know, but I would imagine that when we work through these inventories, we could see a sustained move in Natural Gas prices.
If you would like to keep and eye on the storage numbers yourself, Matt gives out some useful information.
“Go to the EIA’s website: http://www.eia.doe.gov/oil_gas/natural_gas/ngs/ngs.html. Look at the table for Working Gas in Underground Storage. In the lower left corner, you can see the total for the week (3,716 billion cubic feet, as of October 9). Subtract that number from 4,200 billion cubic feet and you can see how much room we have left. You can also scroll down and check out the “Working Gas in Underground Storage” graph. That shows you the trend in red, compared to the historical range in gray.”
When your in bed with the Government, it’s easy to make good calls.
Question?.
The BIG 3, are going to dole out 260 Billion in Bonus $.
Averaging for 119,000 employess, is approx 250k each………
When AIG (Paulson knew and agreed) to pay them their salary in the form of a YEAR end bonus for NOT leaving their jobs( key position folks), and taking a $1.00 for their salary.
ACORN and the public was ALL over them.
Why is GS/MS/&JPM, getting a PASS?…………
Just sayin’………………….
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