By Matt Phillips
Earlier this week Dylan Grice gave us a rather sobering look at long-term trends in commodities, arguing that — over time — the trend for commodity prices has clearly been lower.
Today, Jan Loeys and his merry band of cross asset watchers at J.P. Morgan Global Asset Allocation say they’re staying long commodities in 2011:
We project a 17% total return for the GSCI index over the next 12 months. A number of key commodity forward curves are now exhibiting backwardation, including oil and copper which together account for 55% of the GSCI index. Coupled with our view that tight global supply and strong EM-led demand will?push spot prices above current forwards, this makes a very bullish case for commodity investors next year … Within commodities, we recommend being long those where supply is tight and demand is driven predominantly by EM. Crude oil, copper, and agricultural commodities like grains and sugar are all expected to see an increase in EM-led demand next year. We expect this to push prices above forwards in order to?balance an increasingly tight supply picture. We are also long gold which should continue to benefit from strong investor flows and any uncertainty in the Euro area or globally.
For the record, the S&P GSCI index tracks 24 commodity prices. It’s one of the most heavily followed commodities indexes.
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