Morgan Stanley reiterated its call for gold, silver and copper to outperform other metals as investor demand and central-bank buying bolsters bullion and supply constraints benefit the raw material used in wires.
“Central bank policies ensure conditions remain favorable for continued price appreciation for both gold and its cheaper proxy, silver,” analysts Peter Richardson and Joel Crane wrote in a report today. The bank expects gold to average $1,683 an ounce this year, rising to $1,853 in 2013. Morgan Stanley also remained bearish on aluminum, nickel, lead and zinc.
Commodities as tracked by the Standard & Poor’s GSCI Spot Index rose 11 percent last quarter in the best such performance since March 2011, as central banks in the U.S., Japan, China and Europe, took action to support their economies. Gold is rallying for a 12th year as central banks join investors buying bullion to diversify assets. South Korea and Kazakhstan are among those who added to gold reserves this year. Holdings in exchange- traded products tracked by Bloomberg are at a record.
Central banks’ expansionary monetary policies, with all their attendant inflation and currency debasement risks, are a “game changer” for gold, Morgan Stanley said. “Central banks have further underpinned the likelihood of continued growth in investment demand by emphasizing their own liking for gold as a reserve portfolio asset.”
The Bank of Japan (8301) said Sept. 19 it will expand a fund that buys assets following the U.S. Federal Reserve’s announcement of a third round of so-called quantitative easing, or QE, by buying $40 billion of mortgage-backed securities a month. The European Central Bank also gave details last month of a program to buy debt of member states.
Gold for immediate delivery traded at $1,788.91 at 1 p.m. in London, and has averaged $1,654.68 this year, according to data tracked by Bloomberg. Copper may average $3.63 a pound this year and $3.90 in 2013, the report said. Copper futures in New York traded at $3.8045, and have averaged $3.6196 in 2012.
Goldman Sachs Group Inc. expects aggressive quantitative easing to be the most bullish for copper due to the metal’s “relatively robust fundamentals,” it said in an Oct. 2 report. Copper was seen by 34 percent of about 160 Credit Suisse Group AG clients as having the best 12-month outlook, the bank said in a Sept. 18 survey.
Global industrial output may grow by 3.6 percent in 2012 and by 4 percent in 2013, Morgan Stanley said. China’s industrialization is passing into a more mature phase of lower annual gross domestic product growth as the economy rebalances, with reduced rates of raw-material demand expansion, it said.
Growth in China’s gross domestic product decelerated to a three-year low of 7.6 percent in the last quarter. Policy makers have taken steps to shield the economy hurt by the debt crisis in Europe. China’s central bank cut interest rates in July, after lowering lenders’ reserve requirement ratio three times from November to May, and the government last month approved additional infrastructure spending.
“Chinese growth has already slowed well beyond the comfort levels of many commodity investors, and a prolonged extension of this trend would likely send most commodity markets into significant oversupply,” the analysts wrote. “The euro zone sovereign debt crisis continues to represent the single most significant downside risk.”
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