In their daily briefing, Deutsche Bank commodities analysts Michael Lewis and Christina McGlone point out that in 2012 – notwithstanding a few big winners like lumber and soybean meal – commodities as an asset class were the worst investment on a total return basis.
The analysts see that changing in 2013. Namely, they suggest that precious metals like gold and silver, which languished into last year's end, are set to rebound.
However, Lewis and McGlone cite two main risks to their view. The first is that the economy really starts to improve. This is the hypothesis behind Goldman's notably bearish gold forecast for 2013.
The second risk is a "violent" turn in the U.S. dollar, the Deutsche Bank analysts write:
Historically US dollar cycles persist for an average of seven years, hence the current bear cycle in the US dollar is in its 11th year, and consequently should be viewed as long in the tooth. This has important implications for commodity markets not least given the growing correlation between risk assets since the onset of the financial crisis. Turns in the US dollar following bear cycles can be violent. For example, when the dollar turned in July 1980, the dollar appreciated by just over 40% within the following 12 month period. Given the ongoing weakness in the US basic balance we expect a turn in the dollar is some way off and that the US dollar will display weakness in the first half of this year.
Below is a chart showing the U.S. dollar's decline over the last decade:
Although Lewis and McGlone see continued dollar weakness "in the first half of this year," they don't comment on what might come after that.
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