Investec questions commodity prices, urges caution on mining shares

blinko

http://www.citywire.co.uk/News/NewsArticle.aspx?VersionID=79678&MenuKey=News.Home


what do you guys make of this ??

dunstonh

I read something similar from another fund house just after Christmas. So, the "feeling" is spreading.

cheerfulcat

Hi, blinko,

Just remember that brokers are paid to say this stuff. Do you know what the recommendations mean?

Buy
Overweight
Neutral
Underweight
Sell

:beer:

Cheerfulcat

PS What I really think is that commodities have a long way to go; oil and gas supplies in particular are going to be tight, so unless and until someone comes up with a viable substitute they will continue to be expensive. Silver is IMHO underpriced. Gold is always popular in times of great uncertainty. China and India are booming; they will consume vast quantities of building materials. Just my opinion, you understand.

blinko

hhmmm interesting but do you think this is just a recommendation so that they can cause a little slump in the market which would be a good entry point for them or a genuine the market is over valued.

i heard the same thing last year that mining and oil where heading for a bubble personally i dont think oil will drop under $60 ever demand is just too tight also iran are uncertainty !!! you can guarantee aswell that if iran decide to put temprorary sanctions on oil prices of about 100$ a barrell will start to appear/

do you guys do your own research or do you read the brokers reports and then kinda get a sentiment on the markets position from there !!??

cheerfulcat

I totally ignore brokers' notes. They are rarely independent, for a start. And they frequently seem not to know what they're talking about. I find the quality of research at TMF far superior! I also prefer to form my own opinions from observation.

dunstonh

I don't tend to follow brokers notes until you start seeing many repeat the same thing. Usually I will crystalise a gain at that point by moving profit into something safer. Although more often than not, I will leave the original amount there still. I'm a firm believer in porfolio rebalancing.

There have been occassions in the past were brokers have talked down a sector purely to generate business into another sector. No-one knows what the future holds and everyone is guessing. So, that is why I rebalance rather than do wholesale in and outs of sectors.

EdInvestor

cheerfulcat wrote:

I find the quality of research at TMF far superior!

Especially on oil and gas.

cloud_dog

As a gerneal rule of thumb I'm using China and India as my guide. If these two countries continue their growth in the same band as they have been doing (8%, 9%, 10%) pa then I think commodity prices and therefore commodity stocks will remain bouyant. Oil has additional considerations over and above other commodity prices, i.e. political , but again still strong.

I think the article is really saying that commodities have had an exceptional period of price increases and this (the increases) are likely to be less, or not as dramatic going forward, I don't see it as being a warning of impending doom.

Doing some reasearch recently the other thing to consider when looking at the historically high prices are historical realtionship ratios, for example price of oil against gold and gold against silver. Due to the huge increase in oil price these ratios are now at all time lows, i.e. it gives gold much more scope to continue its increase, similarly because of the gold increase silver now has a significant price gap to gold.

The above is a single indicator and should not be used to base any decision on but the thought is that we are moving into a slightly different (higher) pricing environment. As an example gold (using old analogies) tends to flourish when all is not well in the world, i.e. political problems or stock market uncertainty / crashes, and should not have continued its substantial rise over the last two / three years as stocks / markets have also been rising significantly.

I'm with cheerful on silver - well worth thinking about for the longer term. Unfortunately there isnt an easy way of investing in silver (ignoring futures, etc), if Barclays could get their Silver ETF through the SEC (not holding my breath) then this could give investors direct access to a silver fund. There is a Canadian fund (ETF??) that does invest in gold / silver with a ratio between the two (silver is about 40% of the fund I think).

cloud_dog

p.s. apologies to the board moderator for mentioning a specific fund (Barclays) but as the fund does not actually exist I thought I could reasonably argue that I'm not breaking the rules :-)

al_yrpal

All commodities are well explored worldwide and it is doubtfull if any new, huge, get attable resources, likely to drive markets down, will be discovered now. If they are, they are likely to be in expensive places like deep in the sea or under the south polar icecap. We are talking about finite and dwindling resources which are certain to rise in value. (just think of individuals in Emerging Economies, who are increasingly affording, more petrol and steel for cars, oil/gas for central heating, copper and rare metals in electrical goods etc)
Personally I never dig as deep as brokers recs, because its a recipe for developing a serious tic or twitch. I just attend to ordinary newspapers and news bulletins because thats what markets react to.
IMO you can't go wrong with a decently run commodity fund or trust, but as for individual shares, not me guv, thats what the 'manager' is worrying about.

Deemy

I would be a buyer on any dip in mining shares of say 15% or so from highs.

whiteflag_3

I think timeframe is important. Long term, as long as demand remains ( from far east etc) strong with limited supply, prices can only go one way. Or am I being a little simplistic?