Sharp rise in industrial metals ahead and gold may reach $2000 - Wyke
Christopher Wyke, who oversees Schroders commodities funds,is rather less pessimistic than most on industrial metals and very bullish on gold should the dollar start to drop.
Author: Joseph Chaney, Asia Resources Correspondent
10 March 2009
Government infrastructure spending will drive a rebound in metals prices,
while gold may reach $2,000 an ounce in the next year if the dollar falls,
an executive with UK fund house Schroders (SDR.L:Quote) said.
"The potential for very sharp price rises in industrial metals this year is
very good," emerging market debt and commodities product manager Christopher
Wyke told Reuters.
"We think in infrastructure the cutbacks will be very limited. When a
recession happens, governments in the U.S. and elsewhere accelerate
infrastructure spending."
He said that despite the global economic downturn, Asia retains its appetite
for infrastructure spending, which will support prices of metals such as
copper and zinc. Prices of the two metals have fallen around 58 percent and
54 percent respectively from a year earlier.
"The problems in Asia are not structural, they're essentially cyclical -- a
very severe cyclical downturn," the London-based Wyke said in an interview
at his firm's Hong Kong offices.
Wyke does not directly manage funds but oversees Schroders' commodities fund
products which hold $4.5 billion in assets, including a recently launched
gold and metals fund.
He said Chinese infrastructure spending will be a key driver of metals
demand and prices.
"The level of credit in China has been shrinking in the last 10 years, the
banking system has been reformed, and they have $2 trillion in reserves,"
Wyke said.
"So, is it likely there's going to be wholesale abandonment of
infrastructure investment in China? No."
GOLD BULL
While Wyke has backed off from his stance last June that gold could reach
$5,000 an ounce over the next few years as a refuge from inflation, he still
expects the precious metal to show stronger gains in the second half of 2009
if the dollar falls and inflation fears mount.
"If you saw the dollar resume its fall and maybe toward the end of this year
you started seeing people worried about the inflationary consequences of
U.S. government policies, then gold prices could move up very sharply," Wyke
said.
"In the next 12 months, if that were to happen and the dollar were to fall,
a gold price of $2,000 an ounce is quite likely."
Spot gold, which was trading at $937.20 around 0835 GMT (4:35 a.m. EDT) on
Monday, has risen 6.6 percent in 2009 as investors seek a safe haven of
value amid the global slump.
Schroders' gold and metals fund was up 6.15 percent this year at the end of
February, Wyke said. At the end of January, the fund was worth nearly $61
million, and is down 34.3 percent since its launch in July 2008.
The Reuters-Jefferies CRB index .CRB, a global commodities benchmark of 19
commodity futures, closed at 209.59 on Friday, down nearly 9 percent for the
year.
EQUITIES-LITE
As of January 30, Schroders' gold and metals fund was 68.7 percent futures,
23 percent swaps and exchange-traded funds, 3.7 percent cash, and only 4.6
percent equities.
Wyke likes companies with pure exposure to single metals, such as Canada's
Uranium Participation Corp (U.TO: Quote) -- a fund which held about 4.5
million pounds of uranium as of end-February.
"They tend to be companies with the highest correlation possible to the spot
price of an individual metal," Wyke said.
"We don't hold the big diversified stocks, so we don't hold things like BHP,"
he said, referring to the world's biggest mining group, BHP Billiton (BLT.L:
Quote) (BHP.AX: Quote).
From www.mineweb.com