A Decade of Hot Commodities

We’ve updated our popular Periodic Table of Commodity Returns, and the headline news should come as no surprise – 2009 was a complete turnaround from 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.

CommoditiesPeriodicTable

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 tons 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.

You can view the complete interactive table here, and you can also visit my blog, Frank Talk, for more daily insight and commentary.