Goldman Sachs Group Inc., a commodity bull among Wall Street banks, on Monday recommended that clients sell a basket of commodities that had risen sharply in recent months.
Prices for the handpicked basket, consisting of crude oil, copper, cotton, soybeans and platinum, had surged 25% on balance since Goldman recommended buying the commodities in December.
The basket hit Goldman's return target eight months earlier than expected.
"Even though we have not changed our fundamental views, prices have moved rapidly," David Greely, head of energy research at Goldman Sachs, said in an interview Tuesday.
Tuesday's reversal also hit a range of commodities beyond oil, as investors sold out of hard assets that have benefited for months from low interest rates and lingering fears of financial turmoil.
Copper prices dropped 1.7%, wheat plummeted 4.9%, cotton shed 2.4%, and gold prices dipped 1%.
"A lot of people are doing the exact same thing" as Goldman Sachs by concluding it is time to sell their own commodity basket, said Nicholas Johnson, co-manager of Pimco's CommodityRealReturn Strategy Fund.
We're seeing the following developments here:
1.) Once commodity prices hit a certain level, they naturally start to constrict economic growth. Economists are guessing we're at that price level now -- or at least a lot closer to it than before.
2.) Traders want to lock in profits
3.) Crowd following behavior: I bought the commodities with the crowd, I'll sell them with the crowd.