Morgan Stanley Picks Gold, Corn, Soybeans for 2013

December 6, 2012 at 08:43

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Morgan Stanley reiterated its call for gold, silver, corn and soybeans to outperform other raw materials as a weaker U.S. dollar and investor demand bolster precious metals and supply curbs support grains.

Silver will track higher prices in gold, which is poised to rally on low real interest rates, buying by central banks and more geopolitical uncertainty, analysts including Peter Richardson and Hussein Allidina wrote in a report today. Corn and soybeans should benefit from production delays in South America, they said. The bank is bearish on aluminum, nickel, sugar and uranium as supplies are set to outpace demand.

Commodities tracked by the Standard & Poor’s GSCI Spot Index are down 0.4 percent this year, led by declines in coffee, cotton and sugar. The gauge nearly doubled in the three years to 2011 as central banks and governments around the world took action to boost their economies hurt by the global financial crisis in 2008. Morgan Stanley joins Goldman Sachs Group Inc. in predicting the so-called super-cycle isn’t over.

“Higher prices in recent years have brought both a supply and demand response, bringing many to call for the end” of the super-cycle, the analysts wrote. “We view this as too simplistic. Commodities are cyclical, but the elasticity of supply and demand, as well as the length of the cycle, vary significantly across the complex.”

Goldman reiterated yesterday its “overweight” call on commodities, forecasting that prices will return 7 percent in 12 months, Jeffrey Currie, the head of commodity research, wrote in a report. Citigroup Inc. believes the super-cycle has ended, according to Edward L. Morse, the global head of commodities research, on Nov. 19.

“With commodity supply constraints easing, Chinese growth slowing and producer company returns normalizing,” it is tempting to say the super-cycle is over, Currie wrote. “Current developments are simply the next phase of a commodity investment cycle that began in the late 1990s. We therefore view the current transition as a renaissance rather than an end.”

Goldman, backing crude, corn and copper, expects gold to peak in 2013 on a recovery in the U.S. economy. In contrast, Morgan Stanley is calling for higher gold prices on low nominal and negative real interest rates, geopolitical risk in the Middle East, mine issues and more central-bank buying.

Gold, up 8.1 percent in 2012, is rallying for a 12th year as central banks join investors buying bullion to diversify assets. South Korea and Russia are among those adding to gold reserves this year. Holdings in exchange-traded products are at a record, data compiled by Bloomberg show.

Morgan Stanley also expects higher corn and soybean prices on the potential for lower supplies from South America. Rains and flooding have impeded the pace of planting of Argentine grains while dry weather in Brazilian is threatening beans.