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Why Goldman Sachs is urging investors to buy commodities despite the looming trade war

The prices of commodities have been under significant pressure recently as the world moves closer to a trade war that could curtail demand for raw materials.

Swallow hard Fools! Goldman Sachs is saying there is no better time to buy than now, according to an article in Bloomberg.

This is despite the fact that we are hours away from the US imposing tariffs on US$34 billion of Chinese imports, a move that will surely see China slap on retaliatory sanctions on a range of American goods coming into its country.

It’s anyone’s guess if US President Donald Trump will stop there. A trade war will drive prices of goods higher and that will dampen demand. This in turn probably means China will require less of our minerals and that is bad news for our miners including BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO).

If our mining giants lose steam it will be a drag on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) as they have contributed significantly to the market rally in FY18 when the big banks such as Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have dragged on the index.

The big banks are still facing mounting headwinds, so we will need resource stocks to do a lot of the heavy lifting again this financial year.

This is why Goldman Sachs’ report on commodities could be a powerful driver for the market as the investment bank downplayed the impact of a trade war on commodities by saying the impact on the market will be very small and recommended investors buy raw materials including minerals and agriculture products after the sell-off.

What should also put a smile on investors’ faces is the 10% expected return from commodities that Goldman Sachs is forecasting over the next 12 months.

The only exception to the investment bank’s bullish take is for soy beans as China said it will slap a 25% tariff on the American import. That won’t have much direct impact on our market given that the Australian soybean industry is relatively small.

Goldman has been bullish on commodities for months as the asset class usually outperforms in the late stage of an economic cycle. The bank said in a report in February that it was the most bullish on commodities than at any time since the end of the last mining super-cycle in 2008, according to Bloomberg.

But the experts at the Motley Fool believe there’s another sector that is also poised to outperform in FY19. Click on the link below to find out what this sector is and the stocks that are best placed to ride this emerging boom.

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Motley Fool contributor Brendon Lau owns shares of BHP Billiton Limited, Rio Tinto Ltd., and Westpac Banking. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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