Investors bet on commodities as financial turmoil rages on

At a time when most investors are scrambling for funds and nursing losses, some investors have found a way to make decent profits. Many of th
em took a call six months ago that the bull run in commodities was over. They went ‘short’ on metals and energy. Some even took deliveries in gold and silver, making them true hedgers.

After the US housing market collapse last year, many investors sensed that copper consumption would decline. Also, an imminent slowdown of the Chinese economy sent warning signals. “This prompted many investors to go short on copper, and even crude oil much ahead of the larger crisis that has unfolded in the last two months,” said Atul Shah, commodity head of Emkay Commotrade. He avers: “Those with holding capacity can always make good money.”

All those high networth investors who saw their investments in equities washed away with the stock market deluge, found some solace in their commodity investments. High-profile equity investor Rakesh Jhunjhunwala who preferred to call himself ‘a trader’ in commodity markets, said that he was bearish on four commodities – gold, silver, oil and copper – and went short on them. “This is a lucrative market,” he said. It’s widely perceived that like other stock investors he too has taken a hit in recent equity market downturn.

A large number of investors who had foreseen a slackening of demand with slowing economies sold commodities like copper and crude oil in July and repurchased later. These were in fact, not just day-traders but HNIs who took ‘sell-positions’ and held it said Jayant Manglik of Religare Commodities.

A Mumbai-based commodity trader and advisor, Kushal Thaker reiterated that the inherent meaning of an investment is to take a position and hold it. And this does not necessarily mean only buying. “One can also sell his position and sit with it,” he said explaining that the growth stories of world economies were overdone, and it was clear that a slowdown was due.

From mid-September, when the famed investment banks of Wall Street went down one after another pushing world economies into a panic-mode, gold shone as a safe investment option for investors.

“Extraordinarily large number of investors bought gold with a view to take delivery,” said Mr Manglik.

He elaborated that those investors who bought gold futures in the second week of September when prices were hovering around Rs 11,500 per 10 gm levels in India, some actually took deliveries later. They sold them in batches as the price of gold improved with rising safe-haven demand, to Rs 14,000 levels in mid-October.

However, the bullishness in gold is so strong that investors are still buying. Mr Thaker warned that the European Central Bank would sell gold as soon as there was a whiff of trouble in their economies. These supplies would depress the price of gold.

In base metals, there are investors who believe that now is the right time to buy for long-term holding. Over the last year, many investors went short, and bought back the metal when prices began to fall. “Now, with copper, zinc and nickel trading at near or below production costs, prices are very low. We will buy at these levels and hold,” said Dinesh Goyal, MD, Chirag Goyal Enterprises, who imports non-ferrous metals.

Actual users like him have always hedged 50% of their material in eventuality of a crisis. However, this time around even market investors are finding it prudent to use the same hedging strategies to mitigate their losses in such times of distress.

Source: EconomicTimes