Goldman Sachs and Morgan Stanley: Buy Commodities

Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS) are both predicting that oil and copper will remain bullish in the second half of the year. Brent crude is expected to rise to $120 by year’s end and up to $130 in 2012. Copper will advance to $11,000 a metric ton in the next 12 months as China, the world’s largest buyer of the commodity, continues to buy.

Despite crude’s (NYSE:USO) 4.2% decline in the second quarter, both firms maintained high forecasts for Brent-crude, with Goldman analysts saying that global economic growth will improve in the second half of the year, boosting demand and raising prices on raw materials with supply constraints.

During the last quarter, S&P’s GSCI Index of 24 raw materials lost 7.8%, the index’s worst quarterly performance since 2008. Commodity assets (NYSE:RJI) under management fell off $26 billion in May, the most since October 2008. But Goldman analysts predit that prices and returns will rise later this year and on into 2012, with the S&P GSCI Enhanced Index returning 20% over the next 12 months.

Profit: Consider trying our Commodities Investment Newsletter (free for 14 days) and getting help from a professional.

Euro-debt problems and China’s high inflation will continue to create near-term volatility, according to Goldman analysts. Yesterday, China (NYSE:FXI) — the world’s largest consumer of energy (NYSE:XLE), metals (NYSE:XLB), and grains (NYSE:RJA) — raised its benchmark interest rates 25 basis points, the third time the country has done so this year. The U.S. economy is expected to expand between 2.7% and 2.9% this year, below original forecasts of 3.1% to 3.3%

Besides crude and copper, Morgan Stanley (NYSE:MS) says investors should buy corn and soybeans as the commodities have been taking a huge hit lately, making them priced to buy.

More from The Cheat Sheet