Experts predict commodities bubble is about to burst

Published by Nathalie Bonney on 13 June 2011.
Last updated on 15 June 2011

Speculation about an imminent commodity crash has been mounting after Glencore, one of the world's largest commodity suppliers, announced plans to float on the stock exchange.

"With one of the biggest commodity companies floating, you have to ask if it's a signal of what's to come and whether Glencore is shrewdly selling before the bubble bursts," says Gavin Haynes, managing director of Whitechurch Securities.

"We are relatively cautious with commodities because there's been such a long run and they look a bit overbought at the moment," he adds.  


Justin Modray, founder of Candid Money, however, remains skeptical about the idea of a commodities bubble, especially given the bumpy nature of commodity prices. "It's hard to tell for sure because one week prices drop but they can then go up again just as quickly," he says.

Modray expects commodity prices to stay healthy for up to 30 years, thanks to a burgeoning middle class in the emerging markets. "As well as factories producing goods and using more energy, consumers are using more energy, buying cars and so on," he says. "Also, these areas tend to be where most gold is bought by consumers."

Investors looking for exposure to commodities need to accept that this is a high-risk specialist area that should only make up a small fraction of their portfolio. "Exchange traded funds are straightforward in that they simply track the prices of commodities," he adds.

However, Haynes warns investors against opting for ETFs unless they have sufficient knowledge, claiming the pricing mechanism is very sophisticated. "A more sensible approach is to choose funds that invest in commodities," he says.

Haynes suggests JPM Natural Resources, which includes a range of companies involved in commodities production, or BlackRock World Mining investment trust, which has 10% invested in physical metals.

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