A Decade of Hot Commodities

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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.

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% 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%—while five finished with losses exceeding 50%, led by lead at a negative 63.5%.

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



Just to get into the top half of 2009's performers, a commodity needed gains of about 57%, as you can see with platinum in the 10-year chart above. In fact, while gold received tonnes of attention last year, its 24% 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% up year for natural gas in 2000 down to the microscopic 0.02% gain by crude oil in 2006.
  • Gold had the most positive years—its streak now stands at nine straight years after a 5.5% 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%.
  • 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]

For more insight and commentary from Frank Holmes, visit his daily blog Frank Talk. Also visit www.usfunds.com for more research from U.S. Global Investors.

All opinions expressed and data provided are subject to change without notice. Some of these opinions may not be appropriate to every investor. Investments in natural resources, emerging markets and infrastructure are subject to distinct risks as described in the funds' prospectus. The Reuters/Jefferies CRB Index is an unweighted geometric average of commodity price levels relative to the base year average price.

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