Commodity Prices Expected To Rise In 2013

Quantitative Easing by the major Central Banks has led to significant risk of inflation in the Western Economies. Investors will be looking to move their funds to hard assets such as property, timber and gold. We expect inflation to become more significant in 2013, particularly as Mark Carney, the new governor of the Bank of England has already hinted that he will focus on growth rather than inflation this year.

Commodity prices are likely to increase as a result. That is despite the slowdown in China and the possibility of a hard landing in the Chinese property market. We believe that China will continue to grow, albeit at a lower rate than in prior years, and will continue its appetite for copper and iron ore. Gold and silver prices will almost inevitably increase as a result of the excessive money printing by the Federal Reserve, the European Central Bank and the Bank of Japan.

Gold increased to record levels (just under $1,800) in 2012 however mining stocks do not appear to have increased significantly as a result. This is due partly to the increased fuel costs and the increase in the associated cost of extraction. Major miners had also locked in their prices for 2012 through the use of forward contracts. We would expect mining companies to perform well in 2013 but given the lacklustre performance in 2012 and a history of low yields, we would remain cautious over investing directly in mining companies. Investing in exploration rather than production companies can also be very risky. It may be preferable to invest in directly in Gold or to explore the possibility of locking in prices using forward contracts.