(Kitco News) - Morgan Stanley says gold and copper are among the commodities for which it is “most constructive” in 2011.

Overall, most commodities should move higher next year as demand is bolstered by above-trend 4.2% growth in global gross domestic product, Morgan Stanley said in a report listing its forecasts Friday. More than 70% of the economic growth is expected to come from commodity-intensive emerging-market economies, including China, India and Latin America.

“We are most constructive on crude oil, copper, gold, and corn and soybeans,” Morgan Stanley said.

In the case of copper and gold, Morgan Stanley listed average-price forecasts for 2011 well above the averages for 2010, although below current prices after both markets hit record highs earlier this week.

Expansionary Monetary Policies, Sovereign Risks To Support Gold

Morgan Stanley analysts describe themselves as “increasingly positive” on the outlook for gold for 2011, in part due to the adoption of a second round of quantitative easing, known as QE2, by the U.S. Federal Open Market Committee in November.

“The positive impact on gold prices from QE2 derives from the boost to investor demand for hedges against the threat of imminent deflation or subsequent inflation because of excess growth in the money supply,” Morgan Stanley said.

Analysts also expect investment demand for gold to remain strong given a resurgence of the European sovereign-debt crisis. This should boost gold as investors seek safe havens. Another boost could come if the European Central Bank moves to adopt quantitative easing through the unsterilized purchase of peripheral euro members' government bonds.

Still more supportive factors are tensions on the Korean peninsula, as well as central-bank demand, Morgan Stanley says. It cites World Gold Council data showing that in the third quarter, the official sector posted its sixth straight quarter of net purchases.

Morgan Stanley looks for an average gold price of $1,315 in 2011, up from $1,203 in 2010.

Copper Fundamentals Described As Strong

“Although prices are currently trading close to their all-time high, strong demand trends, low inventory and ongoing supply constraints have reinforced our conviction that copper fundamentals remain the strongest in the base-metal complex,” Morgan Stanley said.

It cited the latest statistics from the International Copper Study Group showing that the global market recorded a cumulative deficit of some 368,000 metric tons for the year to date through August, as refined consumption grew by 7.9% and refined supply only increased by 5.3%.

Morgan Stanley pointed out that London Metal Exchange warehouse stocks have fallen each month since February to their lowest level since October 2009.

“Coupled with weak supply growth, resilient demand has pushed the stocks-to-consumption ratio nearly back to before the global financial crisis levels of 3.4 weeks through 3Q10,” Morgan Stanley said.

Morgan Stanley looks for copper prices to average $7,900 a metric ton in 2011, compared to $7,300 for 2010.

By Allen Sykora of Kitco News; asykora@kitco.com

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