Gold’s Still the Favourite Choice of Investors

By M H Ahssan

Agri Commodities Like Sugar, Soyabean & Rubber Are Expected To Generate Heat In 2009

While gold could outperform other commodities in 2009, things might start looking up for metals and crude as well by the middle of next year, according to analysts. In agri commodities, sugar, soyabean and rubber along with a few spices could generate interest.

The yellow metal has performed well in comparison to commodities like base metals and crude oil as well as other asset classes like equities, debt, realty and bank fixed deposit scheme.

The precious metal made history in March when prices touched an all-time high of $1,032 an ounce on the back of softer dollar, surging crude prices and good investment flows. However, prices fell to $681 level in October but have recovered to current level at $885.

“Gold will continue to remain as a favourite commodity with investors,” says Naveen Mathur of Angel Commodities. He sees the metal getting support at $650 with a potential to exceed its record high of $1,030 per ounce.

Other analysts too are bullish on gold with Kishore Narne, research head, Anand Rathi commodities, predicting $1,200 levels by mid-2009. “With liquidity infusion across the globe, paper currency will see an erosion in value and gold will be a better vehicle for investment,” says Mr Narne.

In 2008, most of the commodities were on a rollercoaster ride. Crude oil, copper, soyabean and crude palm oil hit all-time highs. Prices, however, could not sustain at those levels and there was a fall in investment flows into commodities following the US subprime mortgage crisis and the global financial turmoil in its aftermath. Also, after July, the dollar recovered and demand destruction with the onset of a global recession and inventory build-up led to a sharp fall in crude oil and base metal prices.

In the case of edible oil complex (oilseed &oil) lower stock holding and rally in crude oil supported the prices during period January to June. Thereafter edible oil saw a correction in prices due to good production estimates and fall in crude oil prices. But now when most of the governments are announcing stimulus packages and banks slashing down the interest rates to ease money supply things might improve even for commodities like base metals and crude oil.

Jayant Manglik of Religare Commodities said that following gold, the Year 2009 will also see a good demand for base metals and crude oil with establishment of demand and supply equilibrium.

Strong growth recorded by China, a major base metals consumer, led to sharp rise in metals until mid-2008 following stocking and a rise in industrial activity. Copper hit an all-time high of $8,930 per tonne in first week of July due to rise in construction activity, but prices thereafter fell to $,2800 level. Even crude oil touched an all-time high of $147 per barrel and thereafter fell by 75% to $40.

But Atul Shah of Emkay Commodities is not bullish on all metals. He bets on zinc, nickel apart from crude oil. “Prices of these commodities will consolidate in first two quarters of the coming year and thereafter will show a good bounce,” said Mr Shah.

Sugar is one commodity which will attract investor interest in 2009 due to tight supply and good demand. In Indian market, according to an Angel Commodity report, prices will remain weak in January due to supply pressure from ongoing crushing. Prices might touch a low of 1,650 per quintal and thereafter recover to touch the Rs 2,050 per quintal level.

Even Ashok Mittal, vice-president Karvy Comtrade is bullish on sugar and is targeting Rs 1,900-Rs 1,950 per quintal levels as demand is expected to increase between 6% and 8%. “Also, since the global and domestic production are expected to fall by 25% prices could increase between 25% and 30% in the coming year,” he adds.

Other commodities like rubber and jeera might also show upside due to demand improving in these commodities. “Indian jeera is in good demand globally, which will support this commodity. Rise in crude oil will increase the price of synthetic rubber and generate demand for natural rubber as the substitute,” said Vibhuratan Dhara of Bonanza Commodity.