and platinum: recession-proof commodity bets?
Veronica Brown - Analysis
LONDON | Tue Feb 5, 2008 7:13am EST
- A punt on gold has paid off handsomely for investors
trying to avoid the turmoil in global financial markets
over the last few months, but a commitment to agriculture
or platinum might prove to be smarter.
markets were at the centre of a shopping spree at the
start of this year as fund re-allocation money poured
into all sorts of basic resources from gold to palm
the U.S. economy teetering on the brink of recession,
investment opportunities in commodities may shrink as
concern grows over the length and breadth of any downturn.
say the key to a sound investment is finding something
that can hold its value on more than a portfolio diversification
basis -- for some, this is where agricultural commodities
come into their own.
investments will now probably be the biggest area for
commodity investments. There's ethanol, global warning,
urbanization in China, which all adds up to greater
demand," said Chris Bouckley, a partner at UK-based
fund manager Caliburn Capital Partners.
an impressive 2007, led by wheat and soybeans. Chicago
futures prices for both gained more than 70 percent
on low global stockpiles and robust demand partly due
to exploding emerging market appetite and the biofuels
and longer-term investors have piled into grains as
the fundamentals paint a compelling picture -- one that
may endure despite financial market volatility.
people start losing confidence in the stock market I
don't think that's going to translate into them eating
less goods or agricultural products," said Gavin
Maguire, analyst with Iowa Grain in Chicago.
The top pick
for most within the agricultural sector is sugar, which
has lagged the explosive rally that saw several other
commodities hit record highs in January.
finding support after a near 8 percent loss last year.
Analysts say the global market surplus is narrowing
while demand for alternative fuel based on sugar cane
AS PLATINUM FLIES
metals, analysts are calling for a $1,000 bullion price,
but with gold having hit $930 an ounce already the potential
for further upside may be limited.
may be a better bet.
A power crisis
in top global platinum producer South Africa has crippled
some of the world's biggest mines and sent prices to
record highs above $1,800 per ounce -- extending 37
percent gains made in 2007.
is responsible for 80 percent of world output, making
the power crisis all the more pertinent for the supply
outlook with no quick fix in sight.
expect acute South African power problems to cost the
platinum industry about 200,000 ounces of platinum production
in the first quarter of 2008," UBS said in a note
lifted its platinum price forecast to $1,800 an ounce
in 2008, $2,100 the next year and $2,300 in 2010 from
previous predictions of $1,520, $1,450 and $1,375 respectively.
and soft commodity markets look ripe for the picking
now, a look at past performances during periods of financial
turmoil suggests they are not without risk.
to the Great Depression of the 1930s, U.S. farmers found
themselves competing in an oversupplied international
market, where prices fell and they were often unable
to sell products at a profit.
In the U.S.
slowdown of the early 2000s, soybean prices on the Chicago
Board of Trade fell around 5 percent between March and
October 2001, while wheat and corn barely budged. World
stock markets lost 18.4 percent in the same period.
The key change
going forward, and keeping analysts optimistic, is interest
from emerging markets.
of China is expected to march ahead even if progress
is slowed by a U.S. recession.
resources) are what we call non-economically sensitive
commodities," said Shawn Hackett, president at
Hackett Financial Advisors.
that the corrections that we may see in commodities
as a result of this global financial crisis will be
one of your last opportunities to buy most before the
sweet spot of their bull market rise reaches the maximum
level of acceleration."