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The race for base

There is now a huge increase in demand for nearly all commodities, especially oil, base metals, gold and soft commodities.

The main reason for this is the substantial requirement to support economic growth in emerging markets such as China. There are also dwindling supplies of many commodities.

This trend is also being exacerbated by a lack of investment in increasing production so it looks likely that the prices of most commodities will rise and rise but there will be temporary dips as well.

While gold does not have many industrial uses, demand from the increasing middle classes in emerging economies is growing faster than gold production itself. Platinum and silver as well as some other base metals such as palladium are also in strong demand.

The oil price is likely to continue to rise because oil companies cannot increase their production fast enough to cope with the requirements of countries such as China and India as well as the US.

There is considerable demand for food products from China, where the middle classes are demanding more variety of foodstuffs as domestic production is not increa- sing nearly fast enough.

The two fairly well diver-sified funds I like are JPM Natural Resources, which returned over 159 per cent over three years to January 1, 2008 and over 10 years no less than 594 per cent.

The other fund, First State Natural Resources, has been around less than 10 years but over three years to January 1, 2008 has returned 154 per cent.

The two funds are widely spread, both geographically as well as between gold, energy shares and base metals with some exposure to diamonds and soft commodities.

I also like pure gold funds, Merrill Lynch Gold & General and the Craton Capital Precious Metal fund in particular.


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