2011 promises to be the year of commodities. Every global event in the last three years has either been triggered by commodities or has, in a roundabout way, led to increased influence of commodity prices on the macro-economic environment. Even in the currency wars, commodity currencies like the Australian dollar and Brazilian Real have shown genuine muscle and there is nothing on the horizon to show that the trend is changing. The stimulus money allocated by several governments worldwide saw a race to acquire natural resources across the world due to increased awareness of this issue. Moreover, underlining the global economic uncertainties, gold prices continue to hit new highs with no signs of abatement. Therefore all signals point to 2011 being a year of where prices are likely to continue climbing and therefore commodities will be the best place to invest in 2011.
Demand will come from several places, but the key will remain rising raw material requirement to feed their infrastructure programs in China and India. Similarly, several governments worldwide are printing money and using it to spur infrastructure growth and a lot of this money simply finds its way into commodities like copper which are the basic building blocks (which is why copper also seems to have a fairly direct correlation with the global economy). Of course, there is a price where commodities will simply be too expensive to consume but it’s hard to put a number on it and in any case it is a dynamic number depending on various factors.
Nevertheless, we have seen prices crash in 2008 due to steep run ups and we have to see if a similar magic number is reached this time round too. The last time crude oil rebounded strongly from US $ 147 a barrel, today it is already around 90 and still moving up causing budgets to go haywire in many nations including India. But it does seem that there is a long way to go before this situation actually gets triggered and therefore several commodities are likely to continue to see firm prices for a variety of interlinked reasons.
Expect political action globally as a reaction to increased costs. Like many other countries, agri-prices will be politically sensitive for us but some price rise may be beyond our control – the incessant rise in crude oil prices will once again entice farmers to convert land currently used for food crops for growing ethanol and other energy alternatives. But being wiser after our last experience, it is a good idea to have a strategy ready to offset this. A counter-argument to the entire situation is that the manufacturing industry will see its raw material prices rise (e.g. cotton, silver, copper, aluminium etc) – and exporters can find the going tough as the retail consumers in western nations which they typically export to are not really in a position to pay higher prices this time. Sustained strength of the US Dollar could act as a dampener to commodity prices but it’s anybody’s guess how that would be possible in the face of America’s declared policy of easy money. Add to this the recent currency wars with every country trying to export its way out of recession and you have a really complex situation which will hopefully not lead to global hyperinflation. But either way, commodity prices are dictated by demand-supply and today’s circumstances point towards increased prices.
Prices of several commodities are already at new highs, for example copper and gold. Financial investment into commodities is also on its way up and many banks are becoming active just the way it was three years ago. In addition, producers of commodities are not expanding production to meet new demand because they are not sure if the demand is sustainable – and in the short run this will put pressure on the supply side and aggravate the price situation.
Given this situation, it appears that every investor must go overweight in commodities in his portfolio and the list should contain not just gold but also copper, cotton, crude oil and silver which seem set to ride the price wave in 2011. Most people have already figured out that 2011 will be the year of commodities. Those who haven’t will find out soon enough. If I were investing, I wouldn’t wait.
Tidak ada komentar:
Posting Komentar