Allianz Global Picks Gold, Oil to Lead Gain in Commodities
March 25, 2011, 3:01 AM EDTBy Kim Kyoungwha
(Updates prices in 11th paragraph.)
March 25 (Bloomberg) -- Gold and oil will lead gains in commodities this year as investors seek to guard against rising inflation stemming from a global economic recovery and low interest rates, according to Allianz Global Investors.
Gold will strengthen 19 percent to $1,700 an ounce by the end of 2011 and oil will climb 14 percent to top $120 a barrel, Michael Verhofen, Frankfurt-based manager of the Allianz RCM Commodities Fund, said in an interview. Allianz Global is an asset management arm of Europe’s biggest insurer and oversaw 1.5 trillion euros ($2.1 trillion) of assets as of end-2010.
“The macro environment is strong and we expect rising commodity prices in the next three to six months,” said Verhofen. “We expect a strong performance of the energy sector and the precious metals sector.”
Gold touched a record $1,447.82 an ounce yesterday after rallying 30 percent in 2010, as investors sought a shelter from turbulence in the Middle East, Japan and Europe. Crude prices have jumped 16 percent this year as turmoil that drove longtime rulers from power in Tunisia and Egypt spread to Libya, Yemen, Bahrain and Syria, causing concern over supply disruption.
The Standard & Poor’s GSCI Spot Index of 24 raw materials, climbed to its highest level since August 2008 this month after a 20 percent advance in 2010. Total commodity assets under management were at $376 billion in January, matching the record set a month earlier, according to Barclays Capital.
Grains, Metals
The $100 million commodity fund returned 2.8 percent this year, adding to the 9.6 percent gain made from when it started in October to the end of 2010, Verhofen said. The fund was overweight wheat, corn, sugar, cotton, copper, aluminium and nickel from its inception to February, he said.
“The fund was leveraged during this period,” Verhofen said. “This contributed positively.”
Copper and cotton reached records this year and sugar rose to a 30-year high, while corn surged 99 percent in the past year. The Allianz RCM Commodities is a long-only commodity fund and invests in commodities rather than equities, he said.
Verhofen said he has reduced his bets on grains and base metals, making more room for energy and precious metals.
“As a new harvest enters the market in summer and fall, we expect prices to fall,” Verhofen said, without specifying which grains will drop. “We expect industrial metals to underperform. In a positive macroeconomic environment, demand for metals usually grows at a smaller rate than that for energy.”
‘Optimistic’ Outlook
Crude for May delivery traded at $105.49 a barrel in New York and gold was at $1,434.40 an ounce at 2:25 p.m. in Singapore today.
Easier monetary policies in the U.S. and Europe should help boost global consumption and put their economies on a firmer footing, shoring up demand for commodities, Verhofen said. He didn’t expect a “significant, permanent” impact on commodity markets from Japan’s worst earthquake and tsunami on March 11.
“Historically, commodities have performed well before and up to nine months after the first interest rate increase of the Federal Reserve,” Verhofen said. “We remain optimistic.”
There’s a 32 percent chance the Fed will raise interest rates by December, futures contracts on the Chicago Board of Trade showed on March 23. The benchmark rate has been at a range of zero to 0.25 percent since December 2008.
Verhofen has worked as a fund manager for Allianz Global Investors since March 2007. Prior to that, he was a researcher at the University of California at Berkeley and at the University of St. Gallen in Switzerland.
--With reporting by Ronnie Harui in Singapore. Editors: Richard Dobson, James Poole
To contact the reporters on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;
To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net;
