COMMODITIES NOW


Annual Commodity Investment Survey ETF Securities, one of the world’s leading, independent providers


of Exchange Traded Commodities, recently published a survey concluding that investors will continue to invest in commodities in 2014, with cyclical commodities such as platinum, palladium, and industrial metals remaining favourites. The results were compiled from a survey of 450 investment


professionals conducted during the ETF Securities Annual Commodity Investment conferences which took place in Frankfurt, London, Milan and Zurich last month. Polled attendees remarked that commodities remained a favoured asset class in 2014 with nearly 20% of those polled ranking commodities as one of their top three picks. Cyclical commodities, especially industrial metals were


favoured by investors. Platinum, copper and silver were the top three individual picks with platinum coming out well on top with 31% choosing it as their favourite, followed by copper at 26%. Silver followed suit with an average of 15% choosing it as a top performer in 2014. Gold also saw strong interest (with 13%) concluding the metal is still seen as a hedge against potential growth and financial risks in 2014. The results confirm earlier predictions that if global economic


growth remains on track, commodity performance will follow. Platinum and silver ETPs received the largest inflows in 2013 with USD $1.3bn and USD $841mn respectively as investors shifted away from gold towards commodities more positively correlated with the global industrial cycle.[i] The two biggest risks investors see in 2014 according to the


survey results are 1) a negative financial market response to continued Fed tapering and 2) slower growth than the consensus is now forecasting, with an average of 20% worried about recovery in the United States and 21% most worried about China. Nicholas Brooks, Head of Research and Investment Strategy at ETF Securities highlighted that: “Most investors we surveyed indicated they are positive on


the outlook for global growth in 2014, with the US leading the way. This likely explains their general bullishness towards broad commodities after three years of underperformance, with platinum and copper top picks. Gold also scored well, reflecting investors’ recognition that if the consensus growth story proves wrong, gold will likely perform.”


period since the 1980s,” said Guzberg This month [Feb 2014] was the


first backwardated February since 2004, when the annual total return of commodities was 17.7%. “The shifting environment from a


world driven by expansion of supply to a world driven by expansion of demand has resulted in lower inventories making the commodities more sensitive to supply shocks, driving a positive source of return that is less correlated with equities,” she noted. One of the major supply shocks


6 March 2014


has been the freezing cold weather, which has affected the entire supply chain of food. Livestock may have eaten more corn this winter due to frigid temperatures and the deep frost may take time to work out of soils, potentially slowing planting.


Possible irreversible damage from


dryness to Brazil’s coffee crop and rust fungus in Mexico has killed enough crop for coffee to have its best month in 20 years and second best month in index history since 1981. Even gold has rebounded, drawing support


from short covering and a robust start to the year for China’s consumption. However, the rally will flounder, especially if geopolitical tensions ease, with gold looking the most vulnerable of the precious metals. On the surface, 2014 looks to be a tough year


for commodities, as multi-year projects increase the flow of supplies to market even as demand has turned tepid, especially in emerging markets. “However, a deeper look at the history of this asset class suggests that the outlook for commodities might turn around sooner than many expect,” according to Scott Wolle, chief investment officer for the Invesco Global Asset Allocation (IGAA) team. Wolle continues; “The excess returns provided


by commodities over cash have historically had a very high correspondence with global gross domestic product (GDP) growth. In short: when global GDP accelerates, commodities have tended to do well — in particular, the more cyclical commodities like oil and copper.” Others are not quite so enthusiastic. A new burst of investment in commodities after a poor 2013 could fizzle-out, with investors alert to the fickle nature of rallies across basic resources such as gold and agriculture. Much of the current investment flows are thought to be short-term bets by hedge funds or computer-driven funds based on momentum and technical indicators that could quickly reverse. “Long-term investors


remain wary of the sector due to a still-fragile global economy and plentiful supplies of many commodities,” report Reuters.


Escalating Problems in China’s Credit Markets The recent sell-off in iron ore and other industrial metals


intensified as trade data showed Chinese exports slid a stunning 18.1% year-on-year in February, down from double digit growth in January, sparking fears that the slowdown in the world’s second largest economy is worse than feared. Iron ore was hit hardest because of a worsening crisis in China’s steel sector which consumes more than two-thirds of the seaborne iron ore trade, forging almost as much steel as the rest of the world combined. Robbert van Batenburg, director of market strategy at Newedge,


believes that China is faced with potentially systemic problems in its credit markets, and the most recent developments are a


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