Commodities Boom May Have Peaked as Fed Stimulus Fades – Bloomberg 09-20-12

Salient to Investors:

Concern is mounting that the government isn’t doing enough to bolster economic growth at a time when producers are expanding supply.

Bloomberg survey median expects the S&P GSCI index to rise 3.1 percent by year-end.

Barclays says the impact of QE will be smaller this time, says commodity assets under management hit $406 billion at the end of July versus $399 billion at the start of 2012, and peak $451 billion in April 2011.  Bloomberg says open interest for members of the S&P GSCI rose 16 percent in 2012.

Michael Aronstein at Marketfield Asset Mgmt said investment demand won’t sustain a further long-term move in commodities – the longer you have higher prices, the more supply you recruit.

Morgan Stanley expects supply surpluses in aluminum, nickel, zinc and thermal coal in 2013, Barclays expects a glut in lead for at least a third consecutive year.

 Macquarie Group said the rally in aluminum and zinc makes production cuts in China less likely, prolonging excessive production.

JPMorgan Chase, Standard Bank and Credit Suisse expect gold to be among the biggest winners from quantitative easing.

Bank of America expects gold to hit a record $2,400 by the end of 2014, assuming the stimulus lasts until then.

Walter Hellwig at BB&T Wealth Mgmt likes commodities and gold post QE3, which keeps the bid under commodities prices and brings an opportunity to rise even with a sluggish economy.

JPMorgan said central-bank action should boost prices across precious and industrial metals. Standard Bank expects gold, silver, Brent crude oil and aluminum to rally more than other commodities.

Morgan Stanley expects copper demand to outpace supply for a fourth year in 2013.

Hedge funds et al held the biggest bet on rising prices in 16 months in the week ended Sept. 11.

Sean Corrigan at Diapason Commodities Mgmt sees a tug of war between how much is already priced in and how much poorer is the underlying commodity demand because the world economy is in a much worse condition now.

Joachim Fels at Morgan Stanley says the global economy is sliding into a twilight zone, caught between expansion and recession.

Ashish Misra at Lloyds TSB Banking expects equities and high-yield debt to give greater returns than commodities due to slowdown in China and resumption of normal production trends in agriculture.

Read the full article at http://www.bloomberg.com/news/2012-09-19/fed-stimulus-fading-as-forecasters-say-best-is-over-commodities.html