COMMODITY INVESTING
Figure 2: Commodity Performance in 2012 (Jan – Feb 15)
10 20 30
-30 -20 -10 0
Jan 2012
Aluminum Natural Gas
Coal Platinum Source: Bloomberg Data, U.S. Global Research
events such as the Japan earthquake and the Arab Spring swooped in to shake things up. This uncertainty drove many investors to liquidate their commodity positions and lock in the large gains from 2009-2010. For the year, the commodities sector attracted only $15 billion in inflows, the lowest level since 2002, according to Barclays Capital.
... nearly 30 million people join the emerging middle class each year
Dissipating investor sentiment
and global economic weakness took its toll: When the year ended, only gold, crude oil, coal and corn were in positive territory. Many commodities
10-year Avg Vol
Aluminum Copper
Crude Oil Gold Silver
Natural Gas Platinum Palladium Wheat Corn
10 March 2012
1.53% 2.01% 2.50% 1.21% 2.15% 3.62% 1.44% 2.17% 2.24% 1.99%
Copper Palladium Feb 2012
Crude Oil Wheat
Gold Corn
Silver
suffered double-digit declines with natural gas (down 32%), zinc (down 25%) and nickel (down 24%) the worst performers. An uncertain market
tends to be a volatile one, as was the case in 2011. In fact, Oppenheimer reported that last year was one of the most volatile years on record for the S&P 500 Index, and volatility was roughly one percent higher than the historical average during the second half of the year. It was a similar story for commodities. Silver, gold and crude oil rocketed upward during the first quarter, but the rallies soon lost steam as
the outlook for the global economy turned gloomy and volatility spiked. This table shows the average percentage moves that selected commodities have experienced over the past 10 years. You can see that the second half of last year was exceptionally volatile for nearly all commodities except crude oil and natural gas (see table below).
Commodities: Volatility 2011
Daily Vol 1.44% 1.94% 2.19% 1.25% 2.81% 2.26% 1.28% 2.14% 2.53% 2.22%
As China Goes, So Go Commodity Prices Commodity naysayers point to the broad selloff during the second half of 2011 as a sign that the bull cycle is nearing an end. However, the big picture for commodities hasn’t changed and we believe we’re only halfway through a 20-year commodities supercycle. Supercycles (what we call S-curves) are long, continuous waves of boom and bust inherent in human history. S-curves generally begin with a rapid, exponential increase in growth, followed by a tapering of leveling off. Even after spectacular price gains over the past decade, the commodity supercycle remains. People often want to compare today’s commodity prices to the price spikes of the 1970s and 1980s but the current bullish cycle for commodities is like no other in human history. Rapid urbanization and the birth of an emerging market middle class are squeezing existing commodity supplies. It’s estimated nearly 30 million people join the emerging middle class each year and this new consumer class demands a higher standard of living. BarCap recently echoed those
Second Half 2011 Daily Vol
1.62% 2.30% 2.24% 1.57% 2.91% 2.29% 1.47% 2.43% 2.45% 2.13%
same sentiments in a research report: “The current position is not the end of the cycle; it does not bear the features of any sustainable unraveling of the boom or any general tendency towards
Percentage Change
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