Gold, grains, copper may rise by April

A weak dollar and investor appetite for higher returns from tangible assets have pushed up the prices of commodities

Precious metals, including gold and platinum, and agricultural commodities such as corn, soybeans and sugar may rise within six months while oil and some other energy futures may fall, Investec Asset Management. Commodities have recovered this year as the dollar weakened and investors sought returns from tangible assets, Bradley George, Investec's head of global commodities and resources, said. The Reuters/Jefferies CRY Index of 19 raw materials has gained 24 per cent in 2009, rising to a one-year high.

“It's rational that investors are seeking returns associated with real assets, which is why we've seen both commodity prices and resource equities performing strongly,” George said on a conference call with investors and reporters.

Investec forecasts gold will rise since producers haven't responded to its increasing value by mining more of the metal. The bank also cited “a broad spectrum” of investors who are buying more of the commodity.

“We would only anticipate around about a 5 to 10 per cent upside in the actual gold price,” George said. “There's more upside in gold equities.”

Gold-producing companies are good buys provided operating costs have stayed constant, and George said he favours US and Canadian companies. The Philadelphia Stock Exchange Gold & Silver Index of 16 mining companies, up 41 per cent this year, was little changed today after reaching a 14-month high on October 14, led by Freeport McMoRan Copper & Gold Inc.

Energy outlook
The oil market remains “a little weak” right now, Jonathan Waghorn, a co-manager of Investec's global energy funds, said on the call. The actions of the Organization of Petroleum Exporting Countries will keep crude prices within a range of $50 to $80 through December, he said. He forecast oil to average about $65 a barrel in 2010.

Crude prices will fall in the short term given the potential for OPEC to dump “massive amounts of spare capacity” into the market, he said. Oil touched $82 a barrel in New York, a one-year high. Natural-gas futures may rise in the near term partly on the “unprecedented” cut in U.S. drilling, which will curb output and tighten the market, Waghorn said.

Metal demand
The “immense amount” of buying from China is one of the main reasons for growth in metals this year, said George Cheveley, co-manager of Investec's enhanced natural resources and global dynamic resources funds.

“China is the dominating force now in the metal markets,” he said. After restocking metal supplies in the first half of 2009, China is “digesting” the increase, Cheveley said. Prices of base metals were “pausing for breath” as China's demand cooled, George said. Copper futures climbed to a one-year high in New York, touching $3.0575 a pound.

Copper will continue to be “relatively strong” over the medium term, while aluminum and nickel may fall, since production still exceeds demand for both, Cheveley said.

Agri-commodities
Corn and soybean prices may rise in both the short term and medium term because of the “very slow progress in the US harvest,” said Dawid Heyl, an agricultural commodities analyst. Recent periods of wet weather in the US Midwest has delayed harvesting, threatening to reduce crop yields.

Corn and soybean prices climbed today on forecasts for more rain. Sugar may rise as output may slip from forecasts in Brazil, Heyl said. Sugar prices have doubled this year as output has faltered in Brazil and India, the world's top two producers.

The fund management group is a unit of London-based Investec Plc, an investment bank with more than $53 billion in assets as of March.

The author is a Bloomberg News columnist. The opinions expressed is her own