THERE'S some good news for investors—2011 will be the year of commodities. A variety of factors seem set to ensure firm prices in several listed commodities. Currency wars, stimulus packages, rising demand, supply constraints, a weak US dollar and increased financial investment in commodities (ranging from gold to crude oil, and metals to agricultural ones) are likely to work in favour of commodities. With usual disclaimers in place, here's my list for investments in the beginning of 2011:
The first one, naturally, is gold. The situation is tailor made for higher gold prices and the key elements which influence prices are clearly in its favour. The US dollar is weak as a consequence of sustained stimulus packages and this has seen gold prices soar. Fear of inflation has forced the wealthiest people to park money in bullion. Low interest rates have ensured that nobody wants to leave money in the bank as it actually ends up depreciating. Due to lack of confidence in assets such as equity and real estate, there have been large inflows into gold.
Finally, the increased retail interest has led to gold ETFs having the largest corpus in history and this too leads to increased physical demand. Given this scenario, my guess is that a 20% return on gold this year is possible and if the rupee continues to depreciate against the US dollar, it could be earlier than the end of the year. Gold can be bought via your broker on several exchanges such as MCX, NCDEX, NMCE, Icex and Ace or even as E-Gold on the NSEL Spot Exchange.
The next big one could be silver. Already heating up, we are likely to see sustained demand from the industry as well as ETFs. New retail money frequently chooses silver over gold as a precious metal to invest in. Besides, its link with copper and other base metals (silver is usually mined along with other base metals) has ensured that there is a positive price correlation. Buy silver and look for the magic figure of 50,000 per kg—and plan to lean on the rupee-dollar exchange rate a bit. Similarly, platinum could be the surprise super-investment of the year. Its main industrial use is as an auto-catalyst to clean up car emissions. Diesel engines use platinum and increased sales will mean increased usage—and tighter emission control norms will mean increased compliance and therefore firm prices.
Precious metals are not the only commodities one can have in one's portfolio. It may be profitable to be a bit adventurous and look at making investments in agricommodities. Delivery is via the demat route and the process is similar to holding equity shares or gold in electronic form. The only real difference is that agri-commodities have a limited shelf life and one has to enter and exit within a specified period plus there are seasonal factors. But it is precisely these two factors which throw up the financial opportunities.
For now, trading in spices, particularly jeera (cumin seeds) may be profitable. You can buy it through your regular broker who provides the platform to invest via commodity exchanges. Currently, stock levels are low, sowing in Gujarat and Rajasthan is delayed and increased domestic and export demand is likely to support prices. Weather would be critical in determining the trend for jeera as rains or fog/frost could affect production. One should wait for dips to come during January and then buy for medium term on these dips. If prices move as expected, a return exceeding 20% is not ruled out.
Similarly mentha witnessed prices of over 1,300 per quintal in November. Taking advantage of temporary excess supply, try buying just shy of 1,000 in January contract and a target 1,340 for the medium term could give handsome annualised returns. This is due to the classic demand supply paradigm where export demand as well as demand from the pharmaceutical industries is high and supply is likely to dry up as soon as prices near 1,000.
Highly traded RM seed too has an upward trend. Dictated by international prices, we know that stocks are low globally and prices are supported due to fall in production. Harvesting starts in late February and lasts till March end. Historical patterns show that prices peak in late December and see significant correction till mid-February due to selling pressure and new crop. Therefore, the best bet is futures contracts (June or July) around mid-February in the range of 2,400–2,500 per quintal and aim for 3,200 towards the end of the 2011.
From the above, gold and silver are easy to relate to as investments. Jeera, mentha and RM seed sound like exotic investments. But if you never see the commodity (or an equity share!) and everything is just an entry in your demat account or your ledger, then it makes sense to go for that asset which gives you the best returns. So go ahead, diversify your investments by not only adding commodities but also different segments like precious metals and agri-commodities to your portfolio and enhance the quality of your portfolio.
