By SIMON CONSTABLE
What will it mean for commodities if "Helicopter Ben" Bernanke cranks up the printing press once again?
Some investors simply expect prices to soar across the board if the
Federal Reserve chief institutes a new round of quantitative easing,
aimed at stimulating economic growth. They see such a move flooding
markets with dollars, weakening the U.S. currency, and pushing up the
prices of dollar-denominated commodities, as stronger economic activity
Unfortunately, commodities offer few pure plays for those betting on a
new shower of money. A big exception: gold, to which investors flock
when they believe paper money is being debased by excessive creation.
Marc Chandler, global head of currency strategy at Brown Brothers
Harriman in New York, notes that previous rounds of monetary stimulus
have resulted in rallies for both stocks and the precious metal, with
gold prices strongly correlated with the S&P 500. "If you tell me
the stock market is going to rally, then I think gold will rally," says
Chandler. Silver and platinum will likely benefit, too, if business
activity picks up, because they have industrial, as well as jewelry and
investment applications. If the Fed does act, investors might want to
look at the SPDR Gold Shares exchange-traded fund (ticker: GLD).
outlook is cloudier for purely industrial commodities, including iron
ore, lumber, and copper. "In the short run, industrial commodities are
dominated by economic growth," says David Ranson, director of research
for HC Wainwright & Co. Economics. However, such commodities won't
come to life immediately after the Fed cranks up the presses, but rather
only if there is evidence that the economy is responding to the
stimulus. Ranson thinks that's a big "if." In fact, he sees a huge
danger: "By printing money, the Fed is destabilizing the price system,"
he says. "Anyone who monkeys with the price system is inviting a lot of
trouble." If the monkeying doesn't produce much growth, industrial
commodities won't be a good bet, especially over the longer term.
AGRICULTURAL COMMODITIES, on the other
hand, could be strong in both the short and long run. Corn and soybean
prices have spiked because of the Midwest drought. The worse the harvest
is, the higher prices will be this year. If farmers plant too much to
compensate for this year's disaster, prices could dive next year. But if
the drought persists into 2013, supplies will remain strained, and
prices could get even stronger. Because steers, pigs and chickens feed
on grain, the prices of beef, pork and chicken are also hostage to the
same factors. So what the Fed does is less important than what the
weather does. If crop prices remain high, fertilizer makers like CF Industries (CF) and Agrium (AGU) could benefit in the near term, says Jeffrey Stafford, a Morningstar analyst.
On the energy front, natural gas mainly tracks industrial demand. But
given the current glut, it's unlikely the needle would be moved much by
any Fed stimulus. As for oil, the Mideast will tilt prices more than
Washington. Crude did surge during the last Fed stimulus, which started
in early 2009. But the jump coincided with the Arab Spring, the Libyan
war, and Iran's sabre-rattling. There is, of course, a chance of a new
Mideast conflict. "If Israel and Iran go to war, then oil will pop,"
says Ron DeLegge, founder of ETFGuide.com He'd avoid ETFs that hold oil
futures and instead buy those that hold energy stocks. One example: the Energy Select Sector SPDR (XLE).
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