Commodity investors will favour oil and grains and snub gold this year as food inflation and concerns about unrest in the Middle East outweigh sovereign debt problems, a Barclays Capital annual investor survey showed.
The survey, which the bank has been publishing for the past seven years and which compiles views of over 100 commodity investors, showed that over 80 percent of respondents expect direct investment in commodities to be USD 60-USD 70 billion or more in 2011.
"'Avoid gold' appears to be one of the most striking messages in the section of the poll asking which commodities will perform best and worst in 2011," the survey said.
Not one respondent chose gold as the best commodity performer for 2011, while it was ranked second-worst performer.
"The replies suggest that financial market worries such as those regarding sovereign debt are now less of a concern but are being replaced by fresh ones about geopolitics," the survey said.
Barclays estimates some USD 360 billion is invested in commodities, of which one third is in gold and over one third in energy. Inflows fell to USD 60 billion last year from USD 70 billion in 2009 in the form of investments such as index swaps, exchange-traded products and medium-term notes.
Total investments are still relatively small on a global scale. By comparison, the market capitalisation of top world oil company Exxon Mobil stands at USD 400 billion.
For this year, 85% of respondents said inflows would amount to USD 60- USD 70 billion or more, with only a third of investors having reached 75% or more of their target for allocations to commodities so far, and with over 80% planning to maintain or increase exposure in the next three years.
Oil prices have risen sharply this year due to unrest in the Middle East, and Barclays said a number of other factors might have prompted 28% of investors to chose crude oil as the best performer of 2011.
"We always had a view that at some stage we will have an energy crunch, specifically an oil crunch," said Kevin Norrish, managing director of commodities research, citing growing global demand, a fall in non-OPEC output and OPEC's shrinking spare production capacity.
"If you look at spare capacity, by 2013-2014 we are going to be getting uncomfortably low, probably below the levels of 2008.
"If we were to lose Nigerian crude oil production, which is possible given the elections that are taking place there and the history of what tends to happen in the Niger region delta ... then things start looking even tighter," he said.
Grains came in as the second-best performer after oil as BarCap said food inflation was a major issue for investors, who were worried about Russian exports after a severe drought and about an increased use of corn for ethanol production.
The survey showed a hard landing for the Chinese economy as a top concern for investors, with 59 percent citing it as the biggest downside risk.
"This time last year, sovereign default, regulation and excessive liquidity were all major concerns," the survey said.
On the upside risk, 44% of respondents named geopolitics and 25% cited excess liquidity.
Natural gas was voted third-best investment for 2011 by 17% of respondents and also the worst by 24%, and Barclays said it was a reflection of the divided market.
"You could see a situation this year when UK natural gas performs very strongly and US natural gas doesn't do much," said Norrish.
Base metals markets were in the middle of the rankings, with copper ranking more strongly than aluminium.
Last year's most favoured investment route -- exchange-traded products -- fell from over a third of votes to less than a fifth, most likely reflecting weaker interest in physically backed precious metals exchange-traded products.
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