Silver to see new high; Like copper, lead, zinc: Swiss Asia

Excerpts from Markets Midday on CNBC-TV18 Watch the full show »

Talking about the commodity space on CNBC-TV18 is Juerg Kiener, the managing director & CIO of Swiss Asia Capital. He breaks down the base metals space and says he is looking to add exposure to the same.

He expects copper, zinc and lead to take the lead in the base metals space. He also sees silver recording new highs.

Below is an edited transcript. Watch the accompanying video for more.

Q: What is the outlook for commodities in 2012? If there is so much liquidity that's been pumped in by the ECB and the Fed looking to keep interest rates low, do you see a big rally in commodities?

A: Overall, you will still see huge volatility because global leverage is high. But then you will also see that resources will be as a risk-on trade outperform again because Ben Bernanke said zero interest rates till 2015 and an inflation target of 2.5%. In real terms, it is probably going to look like 5%.

So, your resources have from a monetary point of view a very good environment. From the demand-supply side, on the Middle East oil situation, there are too many people reporting on that, but the upside of that will be quite severe. On the food side, due to whether patterns it looks good and from the metal side particularly the precious metal side because of money printing looks excellent.

Q: If I want to capitalize on this liquidity gush, what kind of metals should I go bullish on?

A: For the first half year, we are overweight gold and silver, so precious metal stocks. With an option we are basically exposed to energy and then for the second half of the year, as the inflationary pressures come back into the markets, we are looking to add more significant exposure to the base metals and the economic activities.

Q: On silver, could you tell us your strategy there and what is the risk return and target one can expect?

A: The markets been in a bull market, it's gone from USD 3 to USD 50. We had a massive correction down to USD 26. We are trading now around USD 34. Maybe we will retest the bottom which I can't see right now, but we are trending upwards. It's one of the few markets which hasn't made new highs in the resources space. If you break out the new highs, the highs will be significantly higher than USD 50 and that gives investors actually a very good risk return structure to invest in. The silver stocks, they are 50% off their highs. So, they have been now looking at valuing silver stocks at roughly USD 18-19. This discount is just too big.

Q: From the base metals, what would your top pick be?

A: We like the rarer space; on the base metals we like the copper space. We like niche products with a higher grade. So if you find good sulphide, nickel looks good. Lately, the zinc and lead environment which has been really hammered badly end of last year looks like it wants to recover. I would rather look at individual companies and ore bodies which have got fantastic economics than just the sector as a whole.

The volatility in the London Metal Exchange (LME), in COMEX will stay high mainly due to the fact that we have leverage. With MF Global, a lot of people experienced that the paper investments you could have in there, might actually not be worth that much, so the volatility has increased even further.