U.S. Global Investors sees copper correction

NEW YORK (Reuters) - The price of copper is headed for a correction soon after a strong three-year run, but the red metal should quickly rebound and continue to rise longer-term, the head of U.S. Global Investors said on Monday.

Copper, like other commodities as well as miners such as BHP Billiton (BHP.AX: Quote, Profile, Research, Stock Buzz)(BLT.L: Quote, Profile, Research, Stock Buzz) and Rio Tinto (RIO.AX: Quote, Profile, Research, Stock Buzz)(RIO.L: Quote, Profile, Research, Stock Buzz) are great bets for investors, especially for the long haul as production fails to keep pace with demand, said Frank Holmes, chief executive officer of U.S. Global Investors.

Holmes was also optimistic about gold's outlook because of robust jewelry demand. He added that Chinese and Indian economic growth should continue to support copper, but the prices were set to head lower soon.

"I think that short-term, copper can go through a big correction," he told the Reuters Global Mining and Steel Summit in New York.

"Copper had a huge move on our mathematical models and is due for a correction. And then you want to be long," said Holmes, whose San Antonio-Texas-based fund controls about $5 billion in investments and has extensive holdings in mining companies.

"Mathematically it's just time for a big correction, but I don't think it's the end if it falls back to $2 a pound."

Copper was selling for around $3.34 per pound in New York on Monday morning. The metal was selling for 65 cents per pound in 2004.

Holmes, whose company has $4.8 billion of assets under management, said demand from China and India for new infrastructure is driving the consumption of copper. Also, no new major copper deposits have come on line for 30 years.

"Because there's no major supply that's going to hit the world, there's lots of people trying to raise money to develop deposits. But the odds, mathematically, are against them.

"I don't see huge supply of copper, gold, etc. being found, but I do see money supply (growing).

"I remain very bullish on these basic commodities because of government policies for 80 percent of the world's population are for growth," Holmes told Reuters journalists in New York.

TOP MINERS SEEN UNDERVALUED

Holmes said that the stocks of No. 1 miner BHP Billiton and No. 2 Rio Tinto looked attractive.

"If you look at their cost of capital versus their return on capital, (for) these stocks, S&Ps didn't even come close to them. They are undervalued," Holmes said.

On gold prices, Holmes said, over the next 12 months, there was a $30 risk to the downside, and a $100 upside potential. Spot gold <XAU=> traded at $662 an ounce on Monday.

He added that current bullion demand looked good because of strong jewelry buying seen after every price correction.  Continued...