Commodities Outlook 2009…
Among all commodities, food-related commodities will outperform the market due to less acreage. Less remunerative prices coupled with cash crunch compelled farmer to produce LESS IN 2009. The two best commodity plays for next year, in my view, are gold and soybeans. China wants to buy 3,600 tons of additional gold for its reserves. European banks don’t want to continue selling what gold hoards they still have left, after 20 to 30 years of participation of selling and leasing gold.
Gold and silver will remain hot favourite as safe haven buying. In bullions, gold can see a new high in 2009. On the other hand, base metals and those commodities used in discretionary purchases (autos, homes, appliances, and construction) can recover only very slowly or stay flat in the first half of 2009. In second half, it can see some strong moves. They will have to increase because there’s going to be shortages.
In a deflationary environment, since 70% of the base metals produce silver, if there’s a big recession, there will be a lot less silver available because there’ll be a lot less base metal mining production. So supply actually contracts automatically in a deflationary environment. So, again, on a per capita basis, there may be less silver minded per person in a deflation than there is in inflation.
In energy complex, natural gas right now is trading weak near the level of $5.55. It traded in the level of $13 to $14, which is nearly triple where we are today. Normally for natural gas there is a rally in February through June for two reasons: February is the highest winter price month using natural gas for heating, and the following peak arrives in a July and August rally as natural gas is used in power plants to run commercial and residential air conditioners. For two months it can trade fat with little upside. From mid of February, it can move up.
We have been focused on Saudi Arabia and the Middle East as our top U.S. oil supplier. The top supplier of crude oil to the United States is Canada; and Canada is also a very large supplier of natural gas. Canada needs a large amount of natural gas at their crude oil tar sands mines in Alberta for refining. These producers keep adding to their operations so natural gas demands continue to correspondingly increase.
In 2009, they will be supplying 10% less to the U.S. next year versus last year. This production cutback doesn’t matter for now as we temporarily demand less gas but for mid to long term it will give impact. In the future, prices should rise on less available supply from Canada.
Despite the OPEC cut, crude is trading weak as ship tankers holding a huge crude oil inventory. Until this on-the-seas-supply is off-loaded and used up, oil prices are projected to stay in the basement for several weeks. In 2009, when the new production cut will applicable and economy will revive then we see an uptrend in the crude oil prices. We can expect that oil will move in a range of $65 to $75, a substantial increase from the current level, but only after a major drawdown in global inventories months away.
U.S. has enough oil and gas to fuel 65 million cars for 60 years and enough natural gas to heat 60 million homes for a hundred and sixty years. The government estimates there is 30 billion barrels of oil on federal land now closed to leases and drilling. We cannot develop it under existing rules and law. That’s where we are now. Somebody else did a study, saying there’s $1.7 trillion in government energy lands that could create thousands of new jobs if, in fact, they would open up these oil and gas fields now off limits.
Currency trading might be one of the better markets next year.
