The attaching volatility ensures that care must be taken with them but we think that there are useful upsides for investors over the medium to long term.
We continue to believe they are attractive and that we are in all likelihood in a long-term bull market for commodities. Ever dwindling supplies and ever increasing demand, albeit with short-term fluctuations caused by reduced demand, supply problems or liquidity squeezes.
With all the woes going on in Europe and elsewhere recently we had seem some falls in commodity prices but it is interesting to see just how quickly good news can lead to a rally in commodities. Fresh on the heels of the announcement around central banks being ready to intervene in a concerted manner to assist with global financial system stability, industrial metals jumped sharply and oil futures also climbed above $100 a barrel in New York. Gold continues to climb, silver, platinum and copper also moved upwards. In fact, copper briefly touched the key level of $8,000 for the first time in four weeks.
In agriculture the momentum for the time being also appears to be up with wheat, soybean, sugar, coffee and cotton all moving upwards on the news too.
While it appears that Goldman Sachs is also a long-term believer in this asset class there are dissenters, at least over the short term. Morgan Stanley, one of the world’s biggest commodity dealers, stating that raw materials markets would face headwinds of slower economic growth and the strength of the dollar in 2012.
However, they did remain upbeat on gold, silver and livestock.
So where does this leave us as medium to long-term investors on behalf of our clients? Pretty much as before we think. Short term-volatility will prevail but demand will mean we will continue to support commodity investment on behalf of our clients within a well-diversified, multi-asset portfolio.
