China Keeps Mov­ing Forward

By Frank Holmes
U.S. Global Investors
CEO and Chief Invest­ment Officer

We've updated our pop­u­lar Peri­odic Table of Com­mod­ity Returns, and the head­line news should come as no sur­prise — 2009 was a com­plete turn­around for the sector's 2008 performance.

Com­modi­ties (as mea­sured by the Reuters-Jefferies CRB Index) rose 24 per­cent in 2009, the largest single-year increase since the early 1970s.

In 2008, only one of the 14 com­modi­ties in the table fin­ished pos­i­tive — gold, up a scant 5.8 per­cent — while five fin­ished with losses exceed­ing 50 per­cent, led by lead at a neg­a­tive 63.5 percent.

Last year, only three of the 14 ended up under­wa­ter for the year, with coal com­ing in at rock bot­tom at minus 13 per­cent. Four of the indus­trial met­als — cop­per, lead, zinc and pal­la­dium — each rose more than 100 per­cent in 2009.

Just to get into the top half of 2009's per­form­ers, a com­mod­ity needed gains of about 57 per­cent, as you can see with plat­inum in the 10-year chart above. In fact, while gold received tonnes of atten­tion last year, its 24 per­cent returns were only good enough for 10th place.

There are many ways to ana­lyze the data in the peri­odic table — I'll share just a few basic observations.

• Of the 140 squares in the table (14 com­modi­ties times 10 years), 92 of them con­tain pos­i­tive returns — that's just under two-thirds suc­cess cov­er­ing a range from the spec­tac­u­lar 320 per­cent up year for nat­ural gas in 2000 down to the micro­scopic 0.02 per­cent gain by crude oil in 2006.
• Gold had the most pos­i­tive years — its streak now stands at nine straight years after a 5.5 per­cent loss in 2000, when the bul­lion price dipped below $265, roughly a quar­ter of the cur­rent price. Oil, plat­inum and sil­ver all had eight pos­i­tive years dur­ing the decade, while nickel had six down years.
• Nat­ural gas had the most extreme swings, fin­ish­ing at #1 three times and at the bot­tom twice. One year after record­ing the biggest yearly gain in 2000, nat­ural gas had the worst single-year loss — minus 74 percent.
• Alu­minum and sil­ver had the least rel­a­tive volatil­ity and the most years hov­er­ing around the mid­dle. Even in their best per­for­mance year (2009), both were in the bot­tom half — sil­ver at #8 and alu­minum at #9.

We believe that the sec­u­lar bull mar­ket for com­modi­ties and nat­ural resources stocks that began in 2000 is far from over. The Inter­na­tional Mon­e­tary Fund believes that com­mod­ity prices will rise fur­ther in 2010 as a result of global eco­nomic recov­ery and esca­lat­ing demand from fast-growing emerg­ing markets.

The expand­ing mid­dle class in China, Brazil and the other biggest emerg­ing economies want more of the mate­r­ial goods taken for granted in the devel­oped world. They are lay­ing claim to a big­ger share of the world's com­modi­ties, many of which could face future sup­ply constraints.

His­tory shows that com­mod­ity super­cy­cles typ­i­cally last 20 to 25 years, though not with­out peri­ods of volatil­ity. If the cur­rent cycle fol­lows the his­toric pat­tern, we could be just start­ing the sec­ond half of a pro­longed upward trend.

[View the Com­plete Inter­ac­tive Table]

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., and a Toronto, Canada native, which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure. The company’s funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper’s top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper’s top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories. Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of “The Goldwatcher: Demystifying Gold Investing.” He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies. Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron’s, The Financial Times and other publications. Read more from the author/contributor here.

Comments

Comments are closed.