Dollar fell below 100 yen for the first time in more than 12 years forcing investors to shift money out of dollar assets. Current estimates of money in asset-tracking commodities are about $110-130 billion globally and this is expected to grow by about 30 per cent over the next year.
Says Seshadri Bharathan, head of stock broking, Dawnay Day AV, "While retail investors are still stuck up at higher levels in equities, there is no doubt that High Networth Individuals (HNIs) are selectively moving to commodities."
This shift in asset classes is also seen as a hedge against inflation. Investment guru Marc Faber said if he was given the option of choosing between equity and commodities for the next 10 years, he would choose commodities.
There is also a clear linkage between equity and commodity markets.
Changes in commodity prices do impact the share prices of companies, whether they are producers or consumers.
Globally, investor money is flowing into gold, platinum, oil and agricultural commodities as prices have got off to a strong start in the year, with expectations that pension funds will further increase their allocations to the asset class throughout 2008.
Says Rekha Panicker, head of Research, MF Global Commodities India, "There is immense interest in crude oil, agri-commodities and precious metals. Pension funds such as Calpers are showing a great liking for inflation-linked assets, including commodities."
"We have been seeing increased volumes on commexes but it may be due to an increase in the position limit by the Forwards Market Commission. There is renewed interest from all classes of investors be it retail investors, traders or corporates. We have been getting lot of calls from investors enquiring about a particular commodity. The basic reason for the rise in prices is tight demand supply. While supply is almost negligible, demand is burgeoning," she added.
In India, gold ETFs have been riding on the bull run by posting one of the best returns so far. Gold exchange traded funds, as an asset class, gave 6.15 per cent returns in February, according to the data released by Lipper.
The current upswing in gold prices has shored up returns of these funds, making them a preferred choice for investors. It has shot up from $600 per ounce to more than $900 per ounce in just three months.
Devendra Nevgi, chief investment officer at Quantum Mutual Fund said, "With US being on the brink of recession, it certainly makes sense to buy commodities and specifically gold because it acts as an insurance cover in your portfolio. To an extent, it is negatively co-related to risky asset classes. And in the event of dollar depreciating against major currencies everyday, gold prices are set to move further."
Changing Times
