The commodity supercycle has ended and investors should reduce their holdings in raw materials, especially gold, and buy equities, UBS AG said.
Slow economic growth in the U.S. will boost equities more than commodities and reduced quantitative easing by the U.S. Federal Reserve will be negative for gold, Stephane Deo, a strategist at UBS in London, said in a report dated today. Industrial metals are rated “underweight” on increased supply and slower growth in top consumer China.
Gold as much as doubled from 2008 to a record $1,921.15 an ounce in September 2011 as the U.S. central bank led nations in cutting interest rates and buying debt. Fed Chairman Ben S. Bernanke said last month the Fed may reduce its $85 billion of monthly purchases this year and end the program in 2014.
“Gold will continue to suffer,” Deo said in the report. “After a stellar performance during the past decade, industrial metals have underperformed the stock market since the beginning of the current decade.”
Gold plunged into a bear market in April and is down 25 percent since the start of the year as some investors lost faith in bullion as a store of value. The metal for immediate delivery traded at $1,259.70 an ounce at 12:31 p.m in London.
The UBS asset allocation was increased in equities and corporate bonds, and lowered in real estate, cash, commodities and government bonds. U.S. economic growth is seen accelerating the most in the euro zone next year, followed by Russia and the U.S., according to the report. Equities will benefit to the extent that Fed monetary tightening will be due to a “resilient recovery,” UBS said.
While UBS cut its forecasts for gold prices through 2015 on June 20 on expectations of Fed tapering, the bank says client interest in gold persists and it started storing gold for wealth-management clients at a facility in Singapore. UBS forecasts gold will be at $1,325 an ounce in 2014.
UBS joined banks from Citigroup Inc. to Goldman Sachs Group Inc. that have called an end to the commodities supercycle, or longer-than-average period of rising prices. The Standard & Poor’s GSCI gauge of 24 raw materials fell 4.5 percent this year after almost quadrupling since 2001.
“Commodities are likely to generate positive returns if the cycle improves, but at a much lower rate than before,” Deo said.
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