Silver, PGMs to outperform gold as it hits well over $1,300/oz - Melek
Commodities are riding high, gold is in it for the long term, and silver and PGMs should outperform gold in the latest scenario forecast by BMO Capital Markets.
BMO Capital Markets Global Commodity Strategist Bart Melek forecast Tuesday that silver and PGMs should outperform gold as gold reaches a long-term peak annual price of well over $1,300/oz.
Meanwhile, Melek advised that reasons to hold gold multiply with time with "considerable upside possible."
BMO Research expects gold to do well longer term, "with a considerable upside risk and a possible gold price of well over $1,300/oz under our ‘bull case' scenario. The yellow metal will likely be energized into 2010 and 2011 amid a weakening greenback, rising inflation concerns and higher jewellery demand, which has been hit hard by the recession."
Melek also forecasts that massive U.S. debt and dollar concerns could "bode well for gold long term."
"Gold could lead inflation by 12-24 months," he said. "Longer term, gold's seven-year run is expected to continue well into 2011. ...The yellow metal should also benefit from a weaker U.S. dollar over the long term."
"Another factor expected to help prices is physical demand from consumers in developing economies as disposable incomes increase, fuelling gold purchases as a store of value and status symbol," he added.
Melek believes silver and PGMs should benefit from the gold rally and the increase in global industrial activity. "As such, they should outperform gold because demand for these materials will grow as investors buy them to hedge against the U.S. dollar and inflation (like gold), as jewellery demand recovers and producers use them for manufacturing.
COMMODITIES
The sentiment toward virtually anything associated with commodities has changed for the better in recent months, says Melek.
"This upbeat attitude should continue to permeate the marketplace well in 2010, as the China-led global recovery firms at a stronger-than-expected rate, the U.S. shows convincing signs that its economy is rebounding and restocking begins outside of China," he predicted.
In his research, Melek noted investors who moved into metal commodities "did extremely well coming of the recession and the ensuing trough. Lead jumped some 150% from its low, copper was up 130%, nickel was up about 100% and oil was up just over 100%. Canadian metal stocks surged 380%, while energy equities and the broad market jumped about 55% from the bottom."
Melek believes a second phase of the commodity market recovery is already under way and is a big contributing factor to the most recent rally "will likely build on strong demand and tightening physical supply/demand conditions."
"The third phase, which is suspended growth in China and the G7 (albeit at modest rates compared to recent years), should sustain commodity demand and prices at a higher trajectory over long period," he predicted.
Nonetheless, Melek advised that commodities will remain firm but choppy in the near term
