Gold and livestock should be the biggest winners for 2012, while zinc, lead, nickel and crude oil are most likely to underperform other commodity markets, according to Morgan Stanley’s 2012 outlook.
Morgan Stanley’s 2012 gold price forecast is $2,200 an ounce. For silver it is $50 and for platinum it is $1,829.
A slower growth outlook means the firm is more choosy about individual commodities, rather than to recommend the space broadly. The firm prefers “relative-value trades and commodities that perform well in low-growth environments. Lingering macro concerns also suggest higher correlations are here to stay,” according to lead author, Hussein Allidina, head of commodity research at Morgan Stanley.
The firm said strength in emerging markets will help to mitigate risk, but can’t offset the risk entirely. With that said, demand will not be able to drive tighter balances, so the difference between how much supply is available versus end-user demand will be an important factor for how the markets will do.
Gold and livestock are expected perform best. “The defensive nature of gold should continue to support investment demand as investors look for safe havens. A continued low or negative real interest rate environment will also provide support,” Morgan Stanley said.
Another top pick for 2012 is livestock, which has also proven to be a defensive play, they said, and the potential for tighter U.S. cattle supplies is also price-positive.
For the precious metals, the firm said silver is an “attractively priced safe haven commodity relative to gold. However, silver’s well attested volatility, its vulnerability to weakening industrial demand, and weaker supply credentials make it a less fundamentally supported market than gold.”
Morgan Stanley is less bullish on the platinum metals group. The PGMs do not have a safe-haven status and platinum has less investor demand. Lower GDP means less discretionary spending which hurts the two main markets for platinum: jewelry and automotives.
For palladium, it is less exposed to the weakening of European Union auto demand, but its jewelry and investment demand base is even more limited.
Many base metals are expected to underperform in 2012, according to the firm. Zinc supplies remain heavy and demand is fading; lead stocks-to-consumption ratios are the highest since 2002 and rising supplies are overtaking demand. Nickel prices will be tied to Chinese stainless steel output and exports.
Crude oil supplies should start to grow again in 2012 and demand should slow as economies are sluggish, the firm said. Prices could fall as low as $85-$90 a barrel in the first half of 2012 for Brent crude oil.
Debbie Carlson-Kitco News November 30, 2011