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| Feature |
5 Hidden Investment Opportunities for 2008
Jan Alexander
01/01/2008
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Ride the Commodity Wave
5. What: Gold and
other precious metals, water, and agricultural commodities.
Why: Commodities
are denominated in dollars, so values rise when the dollar is weak, and global
demand is likely to grow in the years ahead.
How: Invest
through specialty indexes or funds.
Those goldbugs who believe the
dollar is headed toward a collapse never explain how many loaves of bread you
will be able to buy with an ounce of gold when the end of the world hits.
Balestra’s Ryan Atkinson does not look or sound like one of them. But having
accurately foreseen the property meltdown, he now says gold can climb much
higher in the next couple of years. "It’s likely to be a market much like the
1970s, where it explodes; and we are just halfway through it," he says. "By
the end of 2008, gold could go up to $1,000, and it could get higher over the
next three to five years."
Gold is likely to climb not because the U.S. economy is headed
for complete collapse, Atkinson says—though he does predict a mild recession
spinning off from the housing and consumer-debt crises—but because of the
extraordinary amount of liquidity sitting in central banks abroad. "You can
look at gold as an antidollar play but also as an antifiat currency play," he
says. "The dollar is structurally weak. It might be oversold short-term, which
will lead to a sharp rally, but if foreign nations come in and support the
dollar, they will be creating more liquidity. This is also bullish for gold. So
instead of gold rising just in dollar terms, you will see gold rising in terms
of all currencies. Plus, we think a considerable portion of the reserves sitting
in central banks, particularly Asian central banks, will wind up in gold."
Lehman Brothers’ Gurwitz advises moderately risk-averse
investors to put about 4 percent of their portfolio into commodities. "In a
sense, this is currency exposure," he says, "because the investment is in
dollars. The price of oil will stay the same for everyone in dollars, but when
the dollar depreciates, the price of oil goes up."
Oil has been trading at an all-time high, and base metals have
been in a bull-market run since 2001. More-basic commodities, such as food and
water, may go higher. Rob Giannetti, a private wealth advisor and portfolio
analyst at Merrill Lynch in New York, likes the PowerShares water index, which
includes domestic and foreign water companies. Agricultural commodities benefit
from global inflation. Also, despite problems in developing ethanol, the
biofuels industry is still growing, and is expected to increase global demand
for other crops, including wheat and sugar. "In late 2008 and into the next few
years, agricultural commodities should be a leader," says Atkinson.
Illustrations by David Johnson.
Jan Alexander is a features editor for Worth.
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