Monetary Easing a "Game Changer" for Commodities
Source: Reuters, Jan Harvey and Jane Baird (10/19/10)
"Palladium, iron ore, thermal coal, gold, copper and zinc could be set to benefit."
The bank said recent comments from the U.S. Federal Reserve made it a "racing certainty" that more quantitative easing would be introduced at the central bank's next meeting in November.
A second round of QE "means that strong international capital flows will reinforce already powerful domestic credit creation in emerging markets," the bank said in a report.
"That should flow through to robust, commodity-intensive growth in EM, while the developed world struggles in the face of higher commodity prices," it added. "We believe that QE2 will prolong the bull market in commodities."
Auto-catalyst metal palladium, thermal coal and iron ore headed the bank's list of top picks. Palladium is expected to rise as constrained supply from South Africa and Russia, in conjunction with rising demand, tighten the market.
The white metal is one of the best performers of the commodities complex so far this year, with prices currently showing gains of 43% since the end of 2009 and hitting a nine-year high earlier this month.
"We forecast that palladium will likely see one of the strongest increases in intensity of use of any commodity to 2015," UBS said.
The bank also said it saw gold as a good bet. "In a low cost-of-capital world, be long gold," it said.
UBS said it favored gaining exposure to gold prices via gold stocks rather than physical gold, though some risks remained to share investments due to uncertainty over operating costs and conditions and rising political uncertainty.