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Societe Generale is increasingly concerned about the slow-down in China spreading over into the commodity markets.  They think the bullish commodity trend my have run its course already in 2011, however, they remain bullish on gold and silver as hedges against loose monetary policy and inflation:

“We may not know until late 2013 whether a hard landing has been avoided in China.

For the remainder of 2011, we doubt investors will be willing to run large long positions in commodities with very high exposure to the Chinese economy.

  • Base metals: very exposed to Chinese economy (40% of global base metal consumption).  We advise long-only investors to UW base metals in commodity portfolios.
  • Copper: we expect acceleration in mine supply growth in 2012-2013. Surplus highly likely. Copper prices unlikely to trade back above $10,000/t over the next couple of years.
  • Oil (Brent): In the absence of further export disruptions from the Middle East or Africa, the fundamental outlook for the next few quarters is only moderately bullish.
  • We remain bearish on the UK NBP natural gas summer 2012 contract.
  • Gold (and silver): bullish drivers remain in place. Expectation of continued loose monetary policy and accelerating inflation in the US resulting in weakening USD.  We recommend buying gold and silver on corrections.”

Source: Societe Generale

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