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SINGAPORE : Consumers should not expose themselves to a broad range of commodity investments, at least for the next 12 months.
Experts say this is because factors like a slowdown in the global economy will impact prices.
Instead, they are advising investors to concentrate on a few commodities like cotton and coffee, which are set to generate good returns.
Investors should weigh in on commodities like gold and corn for the short term. Experts say people now value gold as a form of currency because of market uncertainties and negative interest rates.
Market watchers expect the price of gold to hit between US$1,300 and US$1,500 per ounce over the next six to 12 months. Currently, it is hovering around US$1,255 per ounce.
Dominic Schnider, head, Commodity Research, UBS, said: "That's why you're going to see ongoing financial demand piling into that kind of commodity.
"Now on the corn side, we have some problems on the wheat side which is going to spill over into corn. And I think with higher demand and also on the production side, some disappointments, probably here you're going to see higher prices as the inventory are structurally low.
"The slowdown in growth or the deceleration in growth should find the bottom somewhere in the first quarter of 2011. Then I think it's going to be a very good time to look into broad-based commodity exposure- - across different sectors and sub-sectors in the commodity space. But for the time being, I would rather be cautious."
For a popular commodity like crude oil, market watchers say it does not have much potential for investors now because incremental demand for oil is losing momentum, resulting in high inventories.
However, observers expect crude oil prices to go up from about US$75 per barrel now to about US$90 per barrel towards the end of next year.
Asian commodities like rubber and palm oil are also enjoying a good flow.
Avatr Sandu, manager, Asian Commodities, Phillip Futures, said: "Demand especially from the tyre sector has increased tremendously. There have been weather problems both in southern Thailand and in Sumatra where most of the rubber is grown, so we don't expect the supply to change drastically.
"There's been a record number of vehicles on the roads in India and also in China. And this has created a huge demand for tyres and it comes down to rubber demand in the end.
"Palm oil, primarily we're looking at one, the use of palm oil as substitute for soybean oil and the other thing is also we expect some weather-related problems to affect productions, especially towards the end of the year."
Mr Sandu added: "There's been strong demand in terms of rising population, especially in China - the middle class is growing. In India, we also expect the same thing. Both these economies are growing and because of this huge demand and prices are rallying.
"The supply has not been forthcoming - there've been a lot of under investment especially in mining firms. No new investments have come on board in a lot of commodities so the supply is stagnant over a period of time but the demand is growing and because of this imbalance, we're still bullish on commodities."
Commodity prices in general have been gaining ground. Experts say they do not believe the prices will return to those levels seen early last year. They say the erratic weather conditions have been a factor in holding prices up.
The other is that countries like China and India are continuing to drive demand for commodities. The only thing that could send prices spiralling downwards is a double dip recession in the US.
- CNA/al
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