Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Commodities Demand Speed Up or Slow Down--Don't Exit the Highway

Commodities / Commodities Trading Jun 19, 2012 - 03:36 AM GMT

By: Frank_Holmes

Commodities

Best Financial Markets Analysis ArticleWhen it comes to investing, wise managers are like good drivers, constantly evaluating the environment, looking for signs to step on the gas or slow down. A positive signal received recently came from Goldman Sachs, when the firm recommended "stepping back into the markets" in its latest Commodity Watch. Goldman is anticipating a 29 percent return for the S&P GSCI Enhanced Commodity Index over the next 12 months and suggests investors might want to increase their position in commodities.


Cautious investors might note that this is a significant change compared to the storm we've been driving through over the past several months. Goldman bases its view on a number of compelling factors that reveal improved conditions:

  1. Prices have been pushed below fair value. Commodities have underperformed all other assets, says Goldman. The U.S. Global investment team tracks numerous resources subsectors' daily movements, and looking over the past 60 days, the Morgan Stanley Commodity Related Equity Index, as well as oil and gas, fertilizers, construction and engineering subsectors have experience double-digit declines, triggering a -1 sigma move. This is a sign that several commodities indices may be oversold; historically, these dips provided buying opportunities.

  2. China and the U.S. have been posting improved data. Forward-looking data for U.S. survey data is more positive and China's activity measures have been "in line with expectations," says Goldman.

  3. Policymakers are taking accommodative action. Recently, we've seen China cut interest rates for the first time since 2008. Australia and Brazil also cut rates, and Indonesia just introduced a stimulus plan to boost consumption and infrastructure spending, using $2.5 billion from the budget surplus to fund building projects as well as lift the tax-free annual income level, reports Bloomberg Businessweek. Some speculate that the U.S. might be next in making an easing move.

Central banks will do their best to provide liquidity to the banking system, says BCA Research. Recently, the Bank of England's central bank has "taken the lead," with total assets significantly accelerating after coming out with its own long-term refinancing operation (LTRO) program. England will provide six-month loans, as well as loans that are below market rates to banks for many years, to help drive lending to households and businesses.

Don't Miss the Entrance Ramp

Many institutional managers have exited the commodities superhighway in favor of cash--currently at the third highest level on record--or technology stocks. In its global fund manager survey this month, Bank of America-Merrill Lynch found that advisors' allocation to commodities reached its lowest level since February 2009.

Global Fund Managers May Miss Buying Opportunity

Instead of commodities, global managers are favoring technology. BofA-ML calls tech "the most loved sector by far," with managers' overweighting the sector an average of more than 40 percent. On the opposite side of the scale are basic materials and utilities sectors.

Technology 'Most Loved' Sector by Institutional Managers

We've discussed this discrepancy in the market: While tech companies, such as Apple, cater to our wants, materials and utilities companies supply our needs. Global resources are needed to power the world: Utilities recharge Apple's iPhone, iPod and iPad, basic materials are needed to build the devices, and telecom companies keep us connected to loved ones.

Rather than veering in and out of sectors, there may be a better course for investors. Roger Gibson, one of the nation's most influential voices on asset allocation, charted a hypothetical investment of a dollar from 1971 through 2011 in three different portfolios: one in U.S. stocks, represented by the S&P 500 Index, one in commodity-linked securities which is the S&P GSCI Commodity Index and one for a 50 percent allocation in each, rebalancing every year.

His math shows that a hypothetical $1 in U.S. stocks over 40 years would be worth $42.60. The dollar invested over that same time in commodity-linked securities would be worth $34.56. However, a 50 percent allocation in each investment would yield the most, making $58.31 after four decades.

Another way to take advantage of a potential upturn in commodities is by choosing dividend-paying global resources equities. Like I told Pimm Fox from Bloomberg recently, I love income with growth--the combination is an important factor in our stock selection process. In the S&P 500 Index, nearly all of the materials and utilities stocks and more than half of energy companies pay a dividend that is higher than the 10-year Treasury. Materials and utilities companies yield an average of 2.3 percent and 4.1 percent, respectively, while energy stocks pay an average yield of 2.2 percent.

Driving on side roads at 25 miles per hour is an arduous way to reach a cross-country destination. In today's challenging economic environment, it's wise for investors to stay the commodities course, recognize the difference between what's in the windshield and the rear view mirror, and keep an eye on the road for unexpected obstacles.

For more updates on global investing from Frank and the rest of the U.S. Global Investors team, follow us on Twitter at www.twitter.com/USFunds or like us on Facebook at www.facebook.com/USFunds. You can also watch exclusive videos on what our research overseas has turned up on our YouTube channel at www.youtube.com/USFunds.

By Frank Holmes
CEO and Chief Investment Officer

U.S. Global Investors

U.S. Global Investors, Inc. is an investment management firm specializing in gold, natural resources, emerging markets and global infrastructure opportunities around the world. The company, headquartered in San Antonio, Texas, manages 13 no-load mutual funds in the U.S. Global Investors fund family, as well as funds for international clients.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor.

Standard deviation is a measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is also known as historical volatility. All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. The S&P 500 Stock Index is a widely recognized capitalization-weighted index of 500 common stock prices in U.S. companies. The NYSE Arca Gold BUGS (Basket of Unhedged Gold Stocks) Index (HUI) is a modified equal dollar weighted index of companies involved in gold mining. The HUI Index was designed to provide significant exposure to near term movements in gold prices by including companies that do not hedge their gold production beyond 1.5 years. The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets. The U.S. Trade Weighted Dollar Index provides a general indication of the international value of the U.S. dollar.

Frank Holmes Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules