Financial Times 19 Febbraio 2009

Goldman Sachs, Wall Street’s largest commodities dealer, yesterday told clients to bet on falling returns from commodities, including crude oil, warning that the shape of the futures curve will trigger further losses to investors in the asset class.

The shape of the futures curve is crucial to the profitability of commodities indices. In addition to the spot return, commodity index investors obtain a separate return – the roll yield – as they roll trades over each month, just before the futures contract expires. That return is positive when futures prices are lower than the prevailing front-month price – a backward-dated market – and negative when futures prices are higher – a contango market.

“While we remain long-term bullish on direct commodity investments, it is this large cost of holding  the position [rolling] that drives our underweight recommendation on direct commodity investments,” Goldman Sachs said.

The contango in many markets has widened to record levels, causing hefty losses due to the roll even with stable spot prices.

By Javier Blas

Source >  FT.com | Feb 18