DUBAI (Commodity Online): Commodities are the hottest investment assets that are emerging in a world that is increasingly shaken by the collapse of several currencies, ranging from the US dollar to the Euro. So when stock markets are on fire and bank interests are falling, where do people find investment solace?

Yes, you guessed it right. It is in commodities that globally renowned investors like Jim Rogers, Marc Faber and George Soros are putting their money in. While Rogers continues to aggressively invest in several agricultural commodities in China, Soros has been mopping up his investments in Gold funds in the last one year.

The interesting article below from Emirates Business discusses why global investors like Rogers, Soros and Faber love investing in commodities:

"What do contrarian investment advisor Marc Faber, billionaire George Soros and super investor Jim Rogers have in common? Well, all of them are bullish on either one or more classes of commodities.

Prices of many commodities, especially metals, energy and bullion have been on an upward trend despite the global financial downturn.

On the Dubai Gold and Commodities Exchange (DGCE), the total trade volume jumped 300 per cent year-on-year to reach 153,747 contracts last month.

Commodities in general are currently being influenced by outside macro-economic factors and not necessarily by supply and demand fundamentals.

These factors include currency movements, monetary tightening in Asia plus potential interest rate increase in the United States, movement in equity markets and a general increase in risk aversion.

This has caused a partial sell-off in risky assets along with gold, according to a report by Rothschild Private Banking and Trust, released last week.

The contagion effect is also resulting in minor outflows from the main gold Exchange-Traded Funds (ETFs). However, recent short covering and new physical buying in India and the Middle East has helped gold maintain its current value, it said.

Overall, Rothschild remains upbeat on the long-term outlook for commodities. However, there are a number of headwinds for commodities in the short term, including a stronger US dollar and mixed economic data, the report said.

Another report by Bank of America-Merrill Lynch titled 'Mena Quarterly' released last week, said the global recovery is favouring cyclical commodities.

"We believe there is growing probability that oil prices will rise above $100/bbl as we head into 2011 on a combination of loose monetary policy and dollar depreciation on a trade-weighted basis," the report said.

However, it added that a tightening in physical oil supply and demand fundamentals could play a significant role in propping prices up.

Crude oil inventories have now drawn significantly across all major regions in the world, highlighting a relatively balanced picture for oil worldwide. Petroleum products, particularly distillate, inventories remain a concern but increased demand, also due to the current cold increase in the US, will help reduce the overhang.

Given the stronger-than-expected cyclical rebound, we expect WTI and Brent crude oil price to average $85/bbl for 2010, it said.

The global economy is starting to bounce back from the sharpest recession in the post Second World War period and almost every country has started to show signs of improvement.

Final demand is recovering, the global inventory cycle is turning up and the implosion in global trade that pulled down the global economy is reversing. While the recovery might be choppy, business cycle effects, re-stocking and fiscal spending make us significantly more bullish on the recovery relative to consensus. In our view, this will lend support to a strong rebound in global oil demand, it added.

Bric story

Analysts said one of the strongest cases of commodities becoming an increasingly attractive investment proposition is that it will continue to attract strong demand from emerging markets that will, in turn, spur commodity prices.

According to combined statistics from International Energy Agency, World Bureau of Metals and the US Department of Agriculture, the market share of emerging markets and developing economies in commodity consumption has drastically jumped over a period of 20 years. The Crude Oil consumption in emerging markets, for instance, has jumped from 43.1 per cent in 1993 to 51.8 per cent in 2008, Aluminium has risen from 32.4 per cent in 1993 to 59.2 per cent in 2008, and Copper from 35.2 per cent to 61.7 per cent during the same period.

The demand and prices of commodities are expected to increase further.

According to a recent report by the IMF research, looking ahead into 2010, prices of many commodities are likely to increase further. The demand side should generally be the main source of upward pressure, as global activity is widely expected to expand at a faster pace.

With inventories remaining above average for many commodities and substantial spare capacity in many commodity sectors, the upward pressure is likely to remain moderate for some time, unless much stronger-than-expected global growth or other surprises Lead to a rapid drawdown of these buffers, it says.

"The demand for commodities is going to continue, and I'm relatively positive on commodities on a long-term perspective because of their strong demand from Bric countries," said George Lo, Chief Investment Officer, Lloyds International Private Banking.

Another strength of commodities is that they turn out to be good hedge against the debasement of the US dollar, he said.

According to the report by Bank of America-Merrill Lynch, extremely loose monetary policy around the world has been supporting physical oil demand and driving tactical asset allocation into oil.

A likely move by China's central bank to tighten monetary policy via foreign exchange appreciation will also be bullish for commodities.

Of course, WTI and Brent crude oil prices are not just driven by physical supply and demand factors.

"We estimate that the sharp depreciation of the dollar has contributed to about one third of the rise in global crude oil prices in 2009," the report added. As prices of commodities rise, analysts believe it is also the time investments in commodities have started to come back into vogue.

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