as i was saying

UPDATE 1-Commodities selling overdone, rebound seen: Goldman
Tue Sep 12, 2006 10:25am ET

By Barani Krishnan

NEW YORK, Sept 12 (Reuters) - The recent slump in commodities, particularly oil, is excessive and provides an attractive buying opportunity, according to Goldman Sachs.

In a research note distributed to clients, Goldman also saw little threat of a recession although it said three consecutive months of declines in its indicators underscored the need for a cautious medium-term outlook on commodities demand.


"The risk remains that a sharper-than-expected deceleration could materialize," the investment bank and leading commodity indices provider said.

Nevertheless, it added: "We believe that the downturn in oil prices and returns is substantially overdone.

"We reiterate our constructive outlook for commodity returns and believe that the current lower index levels provide an attractive entry point for commodity investments," it said.

U.S. crude , which hit a record $78.40 a barrel in July, struck five-month lows on Tuesday, breaking support at $65 a barrel after a panic selloff by short-term funds.

Gold also broke its $600/ounce support as precious metals sold off. Industrial metals fared better, although copper lost about 5 percent on Monday alone.
Goldman said with several more weeks to pass in the U.S. hurricane season and the situation over Iran's nuclear ambitions unresolved, oil had more underlying strength than its current price reflects.

It also expected base metals, which it said were significantly more leveraged to emerging economies, "to continue growing at an exceptionally strong pace".

Although the energy-heavy Goldman Sachs Commodity Index <.GTX> turned negative in the year to date in August, its forecast returns for the full year were unchanged.



NO RECESSION YET, GSCI FORECASTS STAY

"We continue to expect that even if cyclical weakness exerted further downward pressure on commodity markets in coming months, secular factors would continue to support both energy and metals prices at higher levels than in the past," Goldman said.

"Further, as we maintain that secular price supports will persist over the longer term, any downward pressure from cyclical weakness would likely prove short-lived," it added.

Recent macro indicators suggest that global growth is intact, with European economies up as a whole, a Japanese recovery continuing slowly and the United States cooling as expected, the research note said.

"The likelihood of recession remains extremely low, with a decline to trend global growth in 2007 remaining the baseline view," it said. "Specifically, China's growth appears to remain on firm footing."
For the 12 months, Goldman said it was maintaining the 9.0 percent returns forecast for the GSCI energy sub-index; 10 percent for base metals; 7.5 percent for precious metals; 9 percent for agriculture; and 8 percent for livestock