Real commodities being favoured by rich investors worried about worthless cash

Written by Ray Clancy

Tuesday, 16 February 2010 09:10

The ultra-rich are increasingly buying copper, nickel and other physical commodities to shield themselves from paper-money inflation, it is claimed.

According to Swiss commodity fund manager Ronald Wildmann, who manages three Basinvest funds from Zurich, buying hard industrial goods is a bit of a trend among the rich, who see few real estate opportunities and fear devaluation of liquid assets.

‘When you look at what is going on today with central banks increasing money supply and governments increasing on the debt side, you get a little worried about paper money,’ he explained.

‘As a wealthy person, the worst that can happen to you is not that your relationship manager gives you bad advice. What is much more worrisome is when you wake up in the morning and you look out the window and paper money is worthless,’ he added.

Basinvest has about £60.5 million in assets under management in two funds dealing in futures for metals such as nickel, platinum, zinc and palladium, as well as stocks in raw materials companies such as Rio Tinto and Xstrata

Last June it also launched a physical commodities fund which has drawn in an additional $20 million from ultra high net worth individuals in Switzerland and Liechtenstein, many of whom were alarmed by the collapse of Lehman Brothers and financial market wobbles.

The purchased goods are physically stored in warehouses or with forwarding agents that act on behalf of the respective exchange.

Because the price of physical commodities is tied to their production costs, he said they offer a certain guarantee for those worried about the eroding potential of inflation. ‘What you can do is go into real assets. Real assets can be gold, art, diamonds or farmland. And they can also be industrial metals. Copper, for example, always has a price and the price is never zero,’ he said.

Basinvest is bullish on iron ore, anticipating that economic rebound in China and elsewhere will cause shortages in the construction material steel and in coking coal, zinc and steel alloys, pushing up their prices.

Copper’s strong fundamentals make it another top pick for the fund manager, partly because of a dearth of new projects outside of the Democratic Republic of Congo and Mongolia.

Wildmann said that platinum and palladium are also strong bets because of rising production costs in South Africa. He also took a bullish view on ferro-chrome, produced in South Africa and Kazakhstan and used in stainless steel.

But he was more bearish on gold, saying the price had far outstripped production costs despite little actual utility for the precious metal. ‘There is absolutely no use for gold today. When you think about the world without gold, nothing would happen, but a world without copper or alloy or zinc is not running anymore. That is a huge difference,’ Wildmann said.

Although volatility is always higher in commodities than for example in the stock market, more investors are looking at them.