(Updates with commodity forecasts from eighth paragraph.)
Sept. 14 (Bloomberg) -- Societe Generale SA’s global asset allocation team went “underweight” on commodities, saying the asset class is in the “danger zone.”
The team recommends that investors position for higher gold prices and lower oil prices, one of seven key calls made in the report distributed today by the Paris-based bank. The precious metal should benefit from risk aversion, central-bank purchases and negative real interest rates, the team wrote. Crude and copper may decline as economic growth slows and the dollar gains against the euro.
“Prices of cyclically sensitive commodity prices, such as crude oil and copper, have held up well over recent weeks despite the recent deceleration in economic activity,” Societe General strategists Alain Bokobza, Roland Kaloyan, Arthur Van Slooten and Philippe Ferreira wrote in the report. “This should contribute to a meaningful drop in the prices of these commodities.”
The Standard & Poor’s GSCI gauge of 24 commodities is down 14 percent since reaching a two-year high on April 11 amid mounting concern that demand for fuel, metals and food will slow as the European debt crisis deepens, U.S. employment stagnates and Chinese demand slows. This week, the dollar climbed to the highest since February against a basket of six major currencies, including the euro.
Investor skittishness over the spread of Europe’s debt crisis has raised banks’ funding costs and roiled markets worldwide. European governments are aiming to ratify a July 21 agreement to bolster the euro bailout fund and extend a second rescue to Greece. Moody’s Investors Service cut long-term credit ratings today for SocGen and Credit Agricole SA by one level, citing risks posed by the banks’ investments in Greece.
Speculators are holding their biggest wager on higher commodity prices in almost three months, U.S. Commodity Futures Trading Commission data show, anticipating shortages of everything from corn to copper. The GSCI’s 3.7 percent gain this year compares with a 9.9 percent decline in the MSCI All-Country World Index of equities.
Still, investors placed 29 percent less cash in commodity exchange-traded products in the first seven months of the year, Barclays Capital analyst Roxanna Mohammadian-Molina said today in a report. Commodity-based ETP inflows totaled about $7.8 billion, down from $11 billion a year earlier.
Oil prices may average $73.30 a barrel in the fourth quarter this year and the first quarter of 2012, before rebounding to $78.30 in the second quarter next year, the SocGen strategists wrote. Today, the commodity dropped 1.4 percent to $88.91 on the New York Mercantile Exchange, after a U.S. Energy Department report showed declining fuel use.
The dollar is likely to appreciate further against the euro, which “supports our view that commodities and especially energy prices may fall,” SocGen said.
Copper may average $8,710 a metric ton on the London Metal Exchange in 2012, the bank wrote. So far this year, prices have averaged $9,360.31. Copper settled at $8,630 today, down 1.6 percent from yesterday and 15 percent below a high of $10,190 in February.
Gold prices next year may average $2,275 an ounce, SocGen said. That’s 18 percent above a record $1,923.70 set on Sept. 6. Gold settled at $1,826.50 today in New York.
--With assistance from Helene Fouquet in Paris, Eleni Chrepa in Athens and Tony C. Dreibus in London. Editors: Steve Stroth, Daniel Enoch
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