2013: commodities to benefit from global macro turning point?

The first part of next year could be good for cyclical and risky assets, says ETF Securities in a research note.

Signs of improving global growth and continued strong central bank commitment to a highly accommodative monetary policy, the note says, would indicate that commodities could perform well as an asset class.

The more growth-sensitive commodities, such as base metals and the white precious metals, have most potential to outperform. The more cyclical commodities and those most directly related to Chinese demand will likely perform most strongly, in particular if Chinese growth recovers next year.

Gold remains a hedge against worst-case scenarios, including continued low real interest rates, high European sovereign risks, the potential for another US credit downgrade and continued strong central bank buying. These factors should keep the gold price well-supported, says ETF Securities.

A weaker US dollar also supports the gold price, though in this scenario gold will likely underperform the more cyclical metals, as improving growth leads to higher interest rate expectations (and reduced expectations for further quantitative easing), causing periodic bouts of gold price weakness.

Within equities, basic resources and mining companies could outperform through 2013, in the event of a recovery in China and other higher growth regions of Asia.

Commodity currencies such as the Australian, New Zealand and Canadian dollars may rise in this environment and, barring a major sovereign debt- related accident, the Euro should benefit. But funding currencies such as the Japanese yen and the US dollar may come under pressure.

The three key risks to this benign global scenario are: a sharp rebound in sovereign risk in Europe; the US fiscal cliff issue and possible US sovereign downgrade; and further political and military deterioration in the Middle East.

Long gold, oil and volatility positions are potential hedges against these risks.

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