The Most Important Asset Class for the Next Five Years

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

If I had to chose one asset class on which to bet right now, I’d probably chose commodities. The fundamentals are really shaping up well for a number of important raw materials. And it doesn’t really matter if there’s a major economic recovery in the U.S. or not. The most important fundamental going forward is demand from China and India.

I think we’re going to see $100.00 oil very soon, perhaps by the end of the year. It amazes me that the price of a barrel of oil is currently trading around $80.00 given the state of the domestic economy. The current strength in oil is due to weakness in the U.S. dollar, but, as demand picks up in Asia, I think we’re going to see oil run to well over $100.00 in 2010. Because of the recent financial crisis, there isn’t a lot of new investment happening in global oil production. So, we have a combination of factors all coming together at the same time in the global energy market.

In the commodities business, the trend is your friend and I think the current price strength in gold, silver and oil is a strong indicator of further upside. The market is waiting for a new catalyst, but my gut is telling me that these important commodities are getting set to take off in price.

Investing in commodities can be intimidating for some individual investors, but the best way to do so is probably through some sort of basket. The Rogers International Commodities Index has garnered quite a following for its weighted basket of rolling commodity futures contracts. This index is heavily weighted towards oil (35%) and has notable agricultural weightings in wheat (7.0%) and corn (4.5%). It’s easy to consider individual precious metals stocks, but I think some sort of weighted basket of commodities is the best way for investors to take a position in this investment class.

I think that the marketplace is telling us something with gold over $1,000 an ounce and oil trading around $80.00 a barrel. If these important global commodities are trading at these levels during a period of very low growth, then what will happen when economic growth slowly improves over the next several years? This is the question that is preoccupying commodities traders right now and it’s part of the reason why oil and gold are ticking higher right now.