Up-and-coming commodities may unseat gold

Gold has been the precious metal to buy in 2010 but now analysts predict that silver, copper and zinc may be in line for the crown next year.

A worker at a copper smelter in China. The country is the world's biggest copper user. Natalie Behring / Bloomberg
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This year was golden but analysts are pegging other metals to shine more brightly next year.

Gold's emergence as a key holding for retail investors, plus its gain of more than 25 per cent, was arguably the investment story of the year. It reached an all-time high of US$1,431 per troy ounce this month. But many analysts think less alluring metals such as silver, copper, aluminium and zinc may be in line for the crown next year.

Their reasoning is related to what drove gold prices higher: weak currencies; concern about inflation; and the shift in economic growth from the West to emerging markets such as China and India.

China's economy is expected to grow as much as 10 per cent next year, with India slightly behind, which should boost demand for base metals including copper and zinc.

"At those growth rates, demand will be high," said Pradeep Unni, a senior analyst with Richcomm Global Services in Dubai.

China is the world's biggest copper user, and the country's rapid growth is a key factor behind the metal reaching an all-time high this week of $4.3075 per pound.

Zinc was the worst-performing metal this year but is forecast to rise 21 per cent next year, according to a Bloomberg survey of more than 100 analysts, traders and investors.

The top pick for next year is silver, which the experts anticipate will rise 37 per cent in the next 12 months. It closed earlier this week at just above $29 per ounce.

Silver is "quite trendy and more speculative" than gold, said Mr Unni but he sees it reaching between $35 and $38 per ounce.

The flight of individual investors out of stocks and into assets perceived as safer can be seen in the volumes at the Dubai Gold and Commodities Exchange, where trading increased 33 per cent this year compared with last year.

As for gold, Mr Unni sees it peaking at about $1,450, with investment demand remaining strong. "The fundamental case is still very bullish," he said.

The median gold forecast in the Bloomberg survey is for a 23 per cent gain to $1,700, a potential gain that would make gold bugs very happy.

While precious metals have been available as investments for a long time, vehicles tied to base metals are only now being widely offered. Several exchange traded funds backed by base metals were launched this year and major investment firms have announced plans to release more.

Such funds are not offered in the UAE at the moment but local residents should still benefit from any surge in prices for base metals as aluminium is one of the region's top exports, thanks to major investments in recent years at Dubai Aluminum and Emirates Aluminium.

Aluminium prices could reach $2,600 a tonne next year, said Anil Singh Thakur, the associate vice president of commodity research at Gupta Equities in Mumbai. That would be an increase of about 8 per cent above its most recent close at $2,412.