While the MSCI All-Country World Index of equities dropped 15% this year and yields on treasuries fell to near-record lows, the Standard & Poors GSCI Index of 24 commodities rose 2.1%. Goldman Sachs expects commodities to return about 15% in the next 12 months. The last time there was a recession, raw-material prices slumped 43%.
The S&P GSCI more than doubled from a four-year low in February 2009 as shortages emerged. China, the biggest user of everything from energy to copper to cotton, will lead gains in a projected 6.1% expansion in emerging economies next year, more than compensating for the anticipated 1.9% growth in the developed world, the International Monetary Fund says.
The odds favor that the emerging world has succeeded in producing a soft landing rather than a crash landing, said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which manages about $340 billion. A crash landing would make it more like 2008 for commodities, but a soft landing means we probably are in an ongoing recovery, which makes it very likely that commodities go onto new highs.
Ten members of the S&P GSCI rose this year, led by gasoil, gold and feeder cattle, while the biggest losers were cotton, nickel and sugar. That compares with a drop in all 10 of the MSCI industry groups. Treasuries returned 9.24%, on track to beat commodities and stocks for the first time since 2008, a Bank of America Corp. index shows.
Hedge funds and other large speculators are holding a net-long position, or bets on higher prices, of almost 7,55,000 futures and options contracts across 18 raw materials, Commodity Futures Trading Commission data show. While thats down from a record 1.56 million in September last year, its 11 times more than at the bottom of the slump in 2008. Commodity assets under management are within 9% of the record $451 billion reached in April, Barclays Capital estimates.
Holdings in exchange-traded products backed by gold increased to an all-time high of 2,351 tonne November 25, data compiled by Bloomberg show. Gold for immediate delivery rose 20% to $1,704.58 an ounce this year, more than twice the low of $682.41 reached in October 2008.