GO
Loading...

Bargain hunters eye commodities, but may have to wait

Monday, 15 Jul 2013 | 10:12 AM ET
Meridith Kohut | Bloomberg | Getty Images

The second quarter's falloff in commodity prices has led some investors to turn bullish on the asset class, and search for cheap buying opportunities. However, investment bank analysts warned that now is not the time to go bargain-hunting.

Barclays cuts its stance on commodities to "underweight" on Friday, citing threats from monetary policy normalization and rising supply of gold and other metals, while Citi analysts said for most commodities it is still not time for "bottom-fishing."

"As markets begin to focus on the prospect of monetary normalization, demand for precious metals may weaken further," Ana Swirski, a commodities analyst at Barclays, said in a research note. She suggested that weak supply-demand dynamics in major commodity sectors, such as industrial metals, presented downside risks to the overall index.

(Read More: History shows gold could fall another $500)

"The market retreat in the second quarter was part of a more basic trend as the commodity supercycle wound down, and for most commodities, it's probably still not time for bottom-fishing," said Edward Morse, the head of global commodities research at Citi, in a research note.

Gold bugs getting squished?
Marcus Grubb, World Gold Council, explains why pullbacks in the gold market are natural and provide a value buy for any investor.

Precious metals have felt the brunt of recent selling, with silver down 34 percent year to date and gold down 23 percent, while most base metals are down at least 10 percent.

Morse said there was little in the current macro-economic environment that could sustain any short-covering rally in gold, which would "simply present the opportunity for shorts to reload". He added that the decline in gold's "safe haven" status had hit silver, leading Citi to maintain a bearish stance on the silver metal.

"It may be tempting to hope for a renewed equilibrium across markets, but the bumpy and volatile macro environment of the second quarter looks likely to re-assert itself in second half of 2013, not just in commodities but in other asset classes as well," he added.

(Read More: Silver drop will squash production: Miner CFO)

Even crude oil, which defied the commodities selloff in May and June and hung on to the $100 a barrel level should not be getting investors too excited, said Morse, as the "most bullish point of the year for global crude markets" has already been reached.

"The oil market has stormed out of its second quarter doldrums, and, from a look at the screen, is in very good shape. Despite this Citi is keeping its third quarter Brent forecast unchanged at $105 per barrel and its fourth quarter forecast at $100," he said.

Michael Lewis, a strategist at Deutsche Bank, added that commodities had moved to the "bottom of the league table" in terms of asset class performance in 2013. He noted that across the index space, momentum-style or "trend-following" strategies have been the strongest outperformers this year.

By CNBC's Jenny Cosgrave. Follow her on Twitter @jenny_cosgrave.

Featured

Contact Europe News

  • CNBC NEWSLETTERS

    Get the best of CNBC in your inbox

    › Learn More

Europe Video

  • Jan Dunning, CEO of St Petersburg-headquartered hypermarket chain Lenta, says the situation in Ukraine has had no impact on the group, as consumer confidence remains unaffected in Russia.

  • Vincent Deluard, European strategist at Ned Davis Research Group, says the strong euro is a problem for the region's companies, especially for the large exporters.

  • European shares closed higher on Thursday as investors brushed aside concerns regarding Ukraine and focused instead on Wall Street earnings and the latest U.S. jobs data.