BLBG: Commodities May Gain 20% by October, U.S. Global Says
Commodities may gain 20 percent by October as infrastructure spending and increased U.S. and Chinese money supplies fuel raw-materials demand, said Frank Holmes, chief investment officer of U.S. Global Investors Inc.
Crude oil may gain to between $65 and $75 a barrel and copper to $2.25 a pound ($4,960 a metric ton), Holmes said today in an interview. The U.S. may raise infrastructure spending in the next federal budget, he said, adding to China’s 4 trillion- yuan ($590 billion) stimulus plan and the U.K.’s 9.3 billion pounds ($13.6 billion) of spending for the 2010 Olympics.
“I can’t believe how many construction cranes there are in London now,” said Holmes, who spoke in the city. “There weren’t this many five years ago. It’s positive. It’s infrastructure spending.”
China’s banks may raise lending by as much as 8 trillion yuan in 2009 on demand by government-backed investment projects, JPMorgan Chase & Co. said last month. In the U.S., the Federal Reserve is leading a $1.15 trillion commitment to pump more cash into the economy. That has spurred concern among some investors about inflation, against which raw materials serve as a hedge.
“The odds favor commodities going up 20 percent by the fall because of the sheer number of dollars being printed,” Holmes said. “Governments should be focused on rebuilding cities -- build hospitals and schools. If you’re going to go in hock, at least have a nice road for it. I think you’re going to see that thought process permeate.”
Oil, Copper
Oil for May delivery fell 98 cents, or 1.9 percent, to $50.07 a barrel at 12:02 p.m. in London in electronic trading on the New York Mercantile Exchange. Copper for delivery in three months rose $60, or 1.4 percent, to $4,330 a ton on the London Metal Exchange.
“Fifty percent of all infrastructure spending correlates to oil, and oil is highly correlated to money supply,” Holmes said. “Money-supply creation is highly correlated to politicians who want to create jobs.”
U.S. Global Investors, based in San Antonio, Texas, has about $2 billion under management and invests in commodities through equities and exchange-traded funds such as SPDR Gold Trust, Holmes said.
U.S. Global’s World Precious Minerals Fund jumped 17 percent in the first quarter as gold gained 4.2 percent. Commodities as represented by the S&P GSCI Index of 24 raw materials have climbed 5.5 percent this year.
