Here is Merrill Lynch's note on silver and base metals:
"Merrill Lynch Global Wealth Management is switching profit made on gains in silver into industrial metals as output cuts curb supply and investors become less negative about prospects for economic growth. “We have taken some profits on the very strong performance on silver, switching into base metals,” Gary Dugan, London-based chief investment officer for Europe, the Middle East and Africa, said in an interview by phone today. “We are still underweight base metals, but we are increasing our weighting.”
Silver, which rose 29 percent this year to a Feb. 23 peak, has slipped 16 percent since as a gauge of base metals traded in London rose 8 percent and the Standard & Poor’s 500 Index of U.S. stocks gained 4 percent. Commodities will outperform equities and bonds as companies sell shares to raise cash and governments issue debt to fund stimulus spending, Dugan said. Commodities are “the only asset class where there is going to be less supply in the future than in the past,” he said. “A modest improvement in the outlook for global growth, then you could easily see a rebound in commodity prices.” Merrill switched into base metals through its internal commodity fund.
Prices of commodities plunged last year, forcing BHP Billiton Ltd., the world’s biggest miner, and Rio Tinto Group, the third-largest, to cut output and curb mining operations. Xstrata Plc also announced cuts in nickel, zinc and coal production in Canada, Australia and the Dominican Republic. “Commodity cutbacks have been substantial,” Dugan said. “What you are going to see is a rapid rebuild in demand particularly in places like China” as economies recover, he said. Merrill Lynch expects the Chinese economy to grow by 8 percent this year, accelerating to 9 percent in 2010.
China consumes about 30 percent of the world’s output of copper and aluminum, according to Macquarie Bank Group Ltd. “As we go through the summer months things will look incrementally better,” Dugan said, referring to June-August. Commodity indexes may “rise 10 to 15 percent just because people are less negative,” he added. The internal fund is only available to Merrill Lynch Global Wealth Management’s clients through their advisers.
