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“Wall of Money Coming to Commodities” - Analyst

By Tim Wood
15 Nov 2005 at 12:01 PM EST


JOHANNESBURG (ResourceInvestor.com) -- The metals analyst most respected by Newmont Mining’s Pierre Lassonde says investors can look forward to a “wall of money coming to a commodity near you.” UBS Precious Metals Analyst John Reade made the comment in a presentation to the LBMA conference in Johannesburg.

Reade said on Tuesday that the potential demand was reflected in requests starting to flow in from the mainstream investment community, and as new over-the-counter products are developed to satisfy the interest.




“Asset allocation is a top-down process. Once the actuarial consultants get comfortable with [commodities] the pension funds will follow,” Reade said.

He noted the explosion in commodity open interest positions on the futures markets with record levels achieved in gold, copper and oil. Even soft commodities such as sugar are showing astounding liquidity improvements.

At the same time prices of commodities continue to rise and are heralded by resource investors as vindication of their belief that a long up cycle in hard assets is now well under way.

“This time it’s different,” said Reade.

Interest is being spurred by low yielding alternatives such as currencies, bonds and equities though the latter has enjoyed a rise in dividend flows lately.

Reade said there was perhaps $50-$100 billion invested worldwide in commodity index funds. However, the global investment universe was $50 trillion, and Reade says even a modest shift in sentiment would have a tremendous impact on commodity markets.

The analyst believes that investment inflows to gold, along with speculative positioning, will eclipse the supply-demand fundamentals that have shaped the metals fortunes for so long.

Reade rolled out a “Keynesian Beauty Contest” showing why gold is becoming more attractive – currency problems, inflation risks, gold is uncorrelated with other asset classes, and it enjoys “extreme event” characteristics.

UBS offers several structured gold options to clients including a PM Docu, or precious metals double currency unit, and a PM GROI, or precious metals guaranteed return on investment.