Commodity markets will hold firm amidst fears of recession in the U.S., said a global commodity expert today.

While the slumping U.S. economy will put downward pressure on metals this year, long-term prospects are strong, according to Bart Melek, global commodity strategist at BMO Capital Markets. Melek spoke to reporters on conference call today from BMO’s Global Metals and Mining Investor Conference in Hollywood, Fla.

“The consensus here at the conference is that the future for metals and things that come out of the ground, including uranium and gold, is quite bright indeed,” he said.

While commodities are generally quite vulnerable to economic downturns, Melek says demand from developing countries such as China and India will increase while problems with supply will heighten. “The supply side of the equation is almost dysfunctional,” said Melek. “A lot of the oil and a lot of the metals are in places of the world that are geopolitically unstable. With rising costs, the supply side isn’t as elastic as it used to be.”

Melek cites chronic labour and skills shortages, environmental concerns and regulatory changes as factors that will tighten supply in metals markets.

BMO’s positive long-term outlook for metals stems from the combination of a weak U.S. dollar, growing inflationary pressures and an expected increase in demand for jewelry in emerging economies like China and India. “All these factors along with the somewhat accommodative monetary policy is I think persuading investors to locate into gold at the same time,” said Melek.

“With equity markets trading lower and showing a lot of volatility since the beginning of the year, gold is seen as a very good hedge against equity market deterioration and against a slumping U.S. dollar.”

On Monday, the Bush administration announced it considers the plan to sell 12.9 million ounces of gold as the most viable option to ensure the long-term funding of the IMF. The U.S. and other gold-producing countries, including Canada and Russia, must give consent for such a sale.

Melek says he thinks the market could absorb an IMF gold sale over the longer-term. “It will very much depend on how they structure it,” he says. “I don’t believe they are going to dump it all en masse into the market. I suspect it will be an IMF-central bank direct sale at one price with minimal impact on the market.”

On the crude side of things, BMO projects oil prices to moderate from current levels once the impact of Venezuela’s threats to stop supplying the U.S. is out of the market. BMO forecasts crude will average $87bbl this year, about $10 higher than in 2007. As is the case with the metals sector, demand for oil is coming from the developing world at a time when supply growth is limited, it says.

“All in all, while the downward drift from the slumping U.S. economy will occur, it will be very, very moderate by historical standards,” Melek concluded.