Bullish on Commodities

It’s no secret that we’re long-term bullish on commodities.

Our boiled-down viewpoint: there will likely be short-term volatility in the sector, but we believe the enduring strength of the global growth story being led by China and other key emerging markets will be a powerful demand driver in the years ahead.

Some of the research crossing our desks this week seems to line up with our thesis, and it also offers some perspective in the shorter term.

Goldman Sachs forecasts crude oil rising to $85 to $95 per barrel before the end of 2010 based on rising demand from emerging markets and limited supply response. It also sees gold at $1,300 per troy ounce in the next six months, and potentially even higher if the Fed comes out with another round of quantitative easing (QE). Oil and copper could also benefit in a QE scenario, Goldman says – more money created, more spending on key commodities.

Deutsche Bank is less enthusiastic about oil than Goldman, but still sees upside for commodities. It likes copper and nickel (used in stainless steel) on fundamentals and also for investment appeal, and it believes gold will be driven up by central bank buying. “Gold prices would need to move above $1,450 to be considered extreme in real terms,” DB analysts wrote.

BCA Research writes that energy stocks are attractive as an oversold sector, and that industrial metals are appealing over the medium term. While BCA likes copper, it likes aluminum even more both as a substitute metal for steel and due to continued strong demand from China, the world’s leading incremental consumer. Its analysts also suggest taking profits in gold during price spikes.

Gold has been on a good run, making new all-time nominal highs this week. September is historically the best month for gold, given the many jewelry-giving holidays around the world between now and February. We see rising incomes in the emerging-market nations with an affinity for gold as an important driver now and in years to come.

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About Frank Holmes 282 Articles

Affiliation: U.S. Global Investors

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.”

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications.

Visit: U.S. Global Investors

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