Prominent Canadian fund manager Eric Sprott said on Wednesday he was bearish on cyclical commodities such as industrial metals because of the economic slowdown, though he remained positive on gold and crude oil.
Sprott, a long-time gold bull who last week filed to launch a platinum and palladium product allowing investors to redeem the physical metals, said he expects that business to grow in the wake of MF Global's collapse.
I am not bullish on cyclical commodities such as iron ore, coal, steel, lead and zinc because I am worried about this economic contraction that everybody is talking about, Sprott told Reuters in a phone interview from his Toronto office.
He expects gold to hit a record above $2,000 an ounce this year, with silver also rallying to an all-time high at more than $50 an ounce. On Wednesday, gold traded at $1,660 an ounce and silver at $30.50.
Sprott, whose parent company Sprott Inc (SII.TO) manages around C$9 billion in assets, has been bearish on cyclical commodities since the 2008 global economic crisis, and has maintained the gold and silver forecasts throughout last year.
I think there is more upside to the gold-mining stocks. Last year, the stocks were absolutely crushed when the price of gold went down. But when gold goes back up, the stocks will provide a better return.
Bullion lost 10 percent in December and briefly entered a bear market, as it struggled to regain its safe-haven appeal even though investors questioned the viability of the euro.
Year to date, spot gold was up 6 percent, largely tracking equity markets' gains. It posted a 10 percent gain in 2011 that sealed its 11th consecutive year of gains.
Sprott cited strong physical gold demand, indicated by encouraging imports by China and Turkey late last year.
In addition, he was positive on the outlook of the energy market because of relatively inelastic demand and depleting output.
It's getting tougher and more expensive all the time to produce energy. I think that's a pretty good foundation for the oil prices hanging in there.
SELL SHARES, REDEEM METAL
On Friday, Sprott filed regulatory papers for a planned launch of a physical platinum and palladium trust initially worth $115 million on the New York Stock Exchange and the Toronto Stock Exchange. The firm already runs two physical gold (PHYu.TO) and silver (PHSu.TO) trusts.
Investors in Sprott's funds have the option to redeem physical metals, something that not all ETFs offer.
A lot of people thought they owned gold and silver before MF Global went bankrupt. And all of a sudden they found out that they didn't own anything at all, he said.
We like people who own the units to know that they have the ability of getting the physical gold and silver.
Sprott said investors rarely redeem physical metals, but that could change if economic conditions worsen.
In certain circumstances, we could see a lot of redemption. I am talking about financial meltdown circumstances. So, hypothetically it could happen, he said.