Apparently the hottest trade of 2010 will turn into the most boring one in 2011. Prices for gold , copper and oil will end next year right about where they are now, according to the consensus view of commodity strategists from Wall Street firms.
Gold will fall slightly to $1,365 from about $1,400 today, according to the average view of more than 13 firms such as Goldman Sachs and Deutsche Bank compiled by Birinyi Associates. Copper will retreat to $8,833 per metric ton from a record $9,550 level reached in London trading today. Oil will finish 2011 at $89…unchanged.
“Commodities were as much a staple of the financial news as stocks, at least over the past several months,” stated the report from the research firm started by legendary trader Laszlo Birinyi. “This is therefore especially interesting that forecasts are so mixed and clustered near the current price.”
In other words, typically when a trade is working on Wall Street, the consensus view is for it to keep working, until it doesn’t. (See equity forecasts at the start of 2000.) The commodity trade is ending the year showing no signs of slowing down with copper, gold and oil up 31 percent, 28 percent and 13 percent respectively for 2010.
The most bullish strategists among firms surveyed by Biriniyi see oil climbing more than $110, gold nearing $1,700 and copper topping 11,000. But just as many analysts are on the bearish or unchanged side, bringing the average figures about in line where prices are today. Rising rates around the world and a slowdown in China are among the biggest worries of commodity traders heading into the New Year.
“It seems like the commodity guys haven’t been talking to the equity strategists at their own firms, because a positive stock market next year will require a stronger economy that in turn, will lift commodities as well,” said Brian Kelly, founder of Kanundrum Capital. The ‘Fast Money’ trader also cited the new creation of ETFs around the world that will boost demand for commodities next year.
The average equity and economic forecasts from these firms call for a 10 percent gain in the S&P 500 to 1,372 as the economy grows by almost 3 percent, according to Birinyi’s survey.
One possible explanation for the discrepancy across the hallway in major firms could be the future of Federal Reserve monetary policy. Commodities as an asset class benefited most this year from Fed Chairman’s Ben Bernanke’s quantitative easing as investors anticipated the bond purchases would spark inflation.
When the Fed ends its purchases of $600 billion in Treasuries next year, it could hurt these pure plays on inflation the worst. Meanwhile, organic growth and cash being put to work could keep a bid under stocks, investors said.
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