While, for example, Global Markets Institute’s Abby Joseph Cohen opines that, at least as far as the US is concerned, it is “hard to see where significant inflation might come from,” given current US core inflation, US wage pressure, and US factory capacity utilization levels, the Asian Development Bank warned yesterday that several regional central banks are now “behind the curve” and need to tackle inflation through what it calls “preemptive action” sooner rather than later. Regional GDP is expected to race ahead at 7.8% in the current year following a 9% leap in 2010.
As far as investor bullishness on various asset classes is concerned, the overall tilt (when viewed within the context of the aforementioned inflation-oriented anxiety but also based on pure profit motivations) remains obviously positive (perhaps too positive) as regards the broader commodities’ niche.
The release of a March 23 institutional investor survey, one that coincided with Barclays Capital’s seventh annual Commodities Investor Conference in London, reveals that appetite for increased direct exposure to commodities is still high (75%) among such players, at least for as long as interest rates remain low (through mid-year?). More than $62 billion in funds was poured into the commodities’ space last year. One glance at the image below might just offer the best explanation for this phenomenon:
The Barclays survey showed that more than 60% of institutional investors are seeking “active management” strategies over the next 12 months. Perhaps “active” in this sense implies being very nimble and keeping one finger on the “sell” button.
That could be because the survey also warns that “the current year might offer mixed results across commodities, and indicates that investors are concerned with a very different set of risks, particularly around geopolitics, slower growth in China and turmoil in the energy markets. Investors chose crude oil as the commodity that will perform best whilst natural gas was chosen as the worst. The popularity of precious metals appears to be waning. Whilst 2010 was a stellar year for gold, it came nearly bottom of the list in its potential to be a star performer in 2011.”
Whatever caution might be applied to the former, it applies doubly to silver. As was previously pointed out in a comparative investment table that appeared in these columns, the white metal presents exciting returns (on occasion) but it does so while carrying the highest degree of investment risk among competing assets (double that in gold, for example).
Barclays Capital (it keeps coming up when it comes to caution) opines that silver has presently become “detached” from its supply and demand fundamentals, owing largely to what it labels as “retail investor interest.” Barclays cautions that if such lavish attention from the investment crowd falters, so will prices – only to a much larger extent, whether the metric that will be applied is dollars per ounce or percentage losses.
Until ECB day,
Jon Nadler is a Senior Analyst, Kitco Metals Inc.North America