Precious metals including gold and agricultural commodities may extend gains in the coming months as a declining dollar and tight supplies boost demand, according to Deutsche Bank AG.
A lot of agricultural commodities including corn, soybeans and wheat are “still cheap” even after recent rallies, Michael Lewis, global head of commodities research, said in an interview. The surge in gold, which touched a record this week, is not yet extreme, Lewis said yesterday in Tokyo.
Commodities have jumped this year on increased demand as the U.S. emerged from recession and China, the world’s largest metals user, led expansions in Asia. Copper, used in pipes and wires, reached an all-time high today. Grains and soybeans have rallied on higher demand, trade curbs and poor harvests.
“The safest long positions to have are in precious metals and agriculture,” Lewis said in the interview, referring to bets that prices will advance. For gold “the magnitude of this rally to us is not extreme,” Lewis said.
Immediate-delivery gold has gained 28 percent in 2010 and is set for a 10th annual gain as the dollar has dropped. The precious metal touched a record $1,424.60 an ounce on Nov. 9. Corn has gained 42 percent this year on speculation hot, dry weather in August hurt crops in the U.S., the world’s biggest exporter. Cotton reached a record $1.5195 a pound yesterday.
Lewis’s call for higher gold prices echoes forecasts from other investors and analysts including Jim Rogers, who has said it may jump to $2,000 an ounce over the long term. Myles Zyblock, chief institutional strategist at RBC Capital Markets, said last month gold may soar to $3,800 within three years as it follows the pattern of previous “investment manias.”
Gold would need to rise to more than $1,455 an ounce to surpass its all-time high in real terms as measured by producer prices, Lewis said, according to a copy of remarks to clients in Tokyo today. Adjusted for changes in consumer prices, the metal would need to advance to $1,880 an ounce to reach the level seen at the beginning of the 1980s, he wrote in the remarks.
“The gold price would need to hit $2,100 to represent the most powerful rally in percentage terms, and surpass the 1976-1980 gold-price rally, when prices surged by just over 720 percent,” Lewis wrote in the speech.
Gold has surged as the U.S. currency has dropped, investors have boosted holdings through exchange-traded products and central banks including India’s have added the metal to their reserves. The dollar has fallen as the Federal Reserve expanded a program to buy bonds to bolster growth in the largest economy.
The Dollar Index, which tracks the currency against six major counterparts including the euro and the yen, traded today at 77.625 compared with this year’s high of 88.708, which was set in June.
“We expect investors’ flows into gold exchange-traded funds will accelerate, as well as efforts by the Fed to devalue the dollar,” Lewis wrote in the speech to clients. Exchange traded funds, of ETFs, trade like stocks, enabling investors to buy precious metals and other products without taking delivery.
Central-bank gold holdings rose by about 500 metric tons last year and may rise again in 2010, the first time they have been net buyers since 1988, Lewis said in the speech. On current trends, central-bank buying in 2010 will surpass private-sector inflows into physically backed ETFs, Lewis said in the speech.
Central banks in India, Bangladesh, Sri Lanka and Mauritius have bought gold this year and in 2009 from the International Monetary Fund, which said last year it was putting 403.3 tons of bullion up for sale.