(Kitco News) -Tightening supplies for commodities, even in the face of reduced global growth, should keep resource markets supported, and investors should focus on commodities where demand is strong and supply risks are a concern, said Barclays Capital on Tuesday.

The bank said in a research note it prefers long positions in copper, corn and crude oil and it suggests additional protection to economic uncertainty by buying gold.

The second –half of 2011 is expected to be a bumpy ride for investors, said Barclays Capital, with volatility likely as global growth should slow. “The outlook remains uncertain as markets come to grips with recent developments and access the potential effects on global growth. Our economists continue to expect the global economy, and the U.S., to avoid a double-dip recession. However, it has become clear that the global economy cannot generate wealth at the pace originally forecasted by the markets,” they said, estimating global GDP at 3.8% year-over-year in 2011, versus 5% in 2010.

Commodities markets will have an “increasingly important” influence in setting the pace for global growth, especially with supply struggling to keep up with demand in several important energy and food markets. “The vulnerability of commodity supply to geopolitical shocks, bad weather and labor disruptions has rarely been higher,” they said.

They said investors can best position themselves with a long position in Brent crude oil futures and London Metal Exchange copper, but they said to avoid near-term volatility to buy deferred contracts. They also recommend buying corn.

Gold is also rated a buy, which continues the long position already recommended by the bank.

“Supportive factors include physical exchange-traded product flows picking up strongly on the recent worsening in financial market conditions and central banks buying gold once more. Gold also looks likely to benefit in a range of different market scenarios. If Europe’s debt problems continue to mount prices are certain to go higher, but the cure to this issue and that of lackluster growth in the U.S., looks certain to result in further currency debasement which should also prove positive for the yellow metal,” they said.

Barclays sees gold hitting $2,000 an ounce on three factors: macroeconomic insecurity on the back of heightening sovereign debt risks and credit downgrades, a sharp acceleration of broad investment demand, which was mostly absent in the first half of 2011 and  central bank buying has returned and from new corners in sizeable tranches, a trend that is set to continue. “We now expect prices to average $1,800 in the second of 2011 and $2000 in 2012,” they said.

They are cautious on silver, noting the record amount of supply scrap on the market and record mine output. Still, because they are bullish on gold, silver should benefit from investment demand. “But should it ease, we would expect prices to remain volatile until they find physical support on the downside,” they said.

Barclays forecasts silver prices to set a fresh annual average high in 2011 at $36.70 an ounce and to remain elevated in 2012 at an annual average of $35. “However, as the investment demand growth slows, the market will look to the physical market for support, where consumers of the metal are likely to enter at much lower levels,” they said.

Their forecast for platinum is for it to average at $1,808 an ounce in 2011 and to extend their gains to an annual average of $1,835 in 2012. “Barring near-term pressure, platinum prices are likely to break to the upside toward the end of the year, as actual and potential disruptions mean that supply is struggling to keep pace with demand,” they said.

Palladium prices are expected to set a new record annual-average high in 2011 at $798 an ounce and to extend its gains into 2012 and average $860 an ounce, they said. The palladium market should see a second year of supply deficits of 112,000 ounces.

By Debbie Carlson; dcarlson@kitco.com

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