< Back to News

Commodities to Rally, Buy Gold, JPMorgan Tells Investors

Investors should retain holdings in commodities even as the global economy expands at a slower pace as raw-material demand is strong enough to support further gains, JPMorgan Chase & Co. (JPM) said, forecasting gold and copper rallies.

Gold may jump to a record $1,800 an ounce by yearend, while copper revisits $10,000 per metric ton, Colin P. Fenton and Matthew Lehmann wrote in a report yesterday. The bank had raised forecasts for both metals, they said, without giving the earlier estimates. The bank can’t release a separate report of full calls, said spokeswoman Polly Leung, citing compliance policy.

Commodities as measured by the Standard & Poor’s GSCI Spot Index fell for a seventh session today, the longest slump since May 2010, on concern that the global economy is slowing. JPMorgan cut its forecast for third-quarter U.S. growth by a percentage point to 1.5 percent, Chief U.S. Economist Michael Feroli said yesterday. The U.S. is the world’s largest user of oil, and is second to China in terms of copper and aluminum.

“Baring a material contraction in global growth, which we do not currently expect, commodities should continue to move higher,” said New York-based Fenton, global head of commodities research and strategy, and London-based Lehmann, a strategist. “Even at a now slower pace, global growth in the second half should be enough to outpace still-constrained supply in the major commodity markets.”

Second-Half Outlook

Goldman Sachs Group Inc. and Morgan Stanley last month kept their bullish views on copper and oil, predicting a global economic recovery in the second half. Copper was set to benefit from Chinese restocking, Morgan Stanley analysts led by Hussein Allidina said in a July 6 report.

The S&P GSCI Spot Index has advanced 6.3 percent this year, driven by gains in precious metals, lean hogs and energy. The gauge rallied 20 percent last year and soared 50 percent in 2009 as the global economy emerged from recession.

“In keeping with our overall portfolio strategy to put our money as far from the current crisis spots as possible, we stay long commodities,” with gold as a “top pick,” Fenton and Lehmann wrote. So-called long positions are bets on gains.

“The major commodity markets are all currently experiencing supply issues which in spite of slowing demand are keeping prices high,” the JPMorgan report said. “We remain positive on commodity performance over the medium term.”

Spot gold climbed to record $1,672.80 an ounce yesterday, taking this year’s gain to 17 percent, as investors sought haven assets. Three-month copper traded at $9,560 per ton on the London Metal Exchange at 4:01 p.m. in Singapore today. The metal touched an all-time high of $10,190 on Feb. 15.

‘Outstrip Supplies’

The global copper market “is tight as demand continues to outstrip supplies, which is forcing consumers to substitute copper with other metals when possible and increase the use of scrap supplies,” the report said.

Worldwide demand for the metal used in wires is set to exceed output by 377,000 tons this year, according to the International Copper Study Group. A decline in average grades is putting upward pressure on costs for the industry, Codelco, the world’s largest copper producer, said today in a presentation.

Corn and wheat, like gold, are “least sensitive to growth shocks,” Fenton and Lehmann wrote the report. Harvests of the grains “in the fall will likely bring much lower yields than currently expected,” they said.

Wheat rallied 17 percent last month in Chicago and traded at $7.45 per bushel today. Corn has gained almost 13 percent this year to $7.0625 per bushel on speculation that higher demand for ethanol and animal feed will keep stockpiles low.

Source: Chanyaporn Chanjaroen (Bloomberg)