Russia Copper
Commodity Prices Erupt On Backend of 2010
No matter the category: gold, silver, copper, uranium, wheat, sugar, cocoa if it was a commodity, it pretty much kicked butt in 2010. Any way you slice it, commodity prices erupted on the backend of 2010.
Gold was the clear standout in 2010. It traditionally has been viewed as a classic shelter investment, often used as a hedge against inflation. That kept it idling for much of the decade before the global financial crisis emerged in 2008. Then, as central banks started taking dramatic actions to stimulate their economies, gold starting moving higher as interest rates dropped to record lows and some currencies fell in value. That led some investors to predict higher inflation is inevitable. Other precious metals, like silver, also moved higher.
On Friday, gold closed at $1,421.40 an ounce, 31 percent higher for the year after an almost uninterrupted climb since January. This was also the 10th consecutive year in which gold appreciated. Gold should continue to rise well into the second half of 2011. Political instability, such as military tensions on the Korean peninsula, coupled with further stimulus plans and bailouts in Europe mean gold’s safe-haven status will keep it in high demand.
Industrial metals, used to make everything from computer parts to automobile engines, also gained as global consumption and manufacturing started to recover. Copper in particular surged more than 40 percent, rising from just over $3.00 a pound to close the year at $4.4470.
Meanwhile, 2010 marked one of the most profitable years ever for farmers in the U.S. Midwest. Smaller reserves of corn and soybeans this year couldn’t satisfy ever-growing global demand, sparking a price rally over the summer that has yet to abate. Wheat prices also climbed as droughts, fires and heavy rains around the world slashed the amount of grain for harvest. With Russia’s post-fire grain export ban likely to remain in place throughout 2011 and European exports expected to be exhausted in January, the U.S. looks increasingly likely to be the supplier of last resort in the coming year.
Grains and soybeans closed higher on Friday. March wheat rose 9.5 cents to settle at $7.9425 a bushel, March corn rose 13 cents to $6.29 a bushel and March soybeans added 27 cents to close at $14.03 a bushel.
Oil prices ended the year at levels many analysts considered unachievable just six months ago as oil surpassed $90 a barrel this month and remained above the threshold to close the year at $91.38 a barrel. Increased demand from China and India has also helped stoke the rise in oil and energy prices in the second half of the year. Oil prices hit a low around $70 a barrel late in May as traders worried that debt problems in Europe and high unemployment in the United States would keep economic growth stagnant and energy demand low. But increasing demand in the developing world has changed all that.
Undoubtedly, the jump in commodity prices has been driven by China’s seemingly insatiable demand for raw materials and speculators betting that they could profitably ride the momentum higher. Investors are looking to get out of the dollar, and stocks have run up so much that commodities are looking like a good alternative. Expect further price increases, and volatility to continue well into 2011.
Jeff Kaminker
Jeff Kaminker is a licensed Commodity and Derivatives Trader. He is President of Frontwater Capital and works with a number of Fortune 500 companies providing commodity risk management services.
http://www.fwcapital.ca
http://fwcapital.ca/wordpress
Jeff Kaminker PM, CFA, MBA, P.Eng
President, Frontwater Capital
About the Author
Jeff Kaminker is licensed as a Portfolio Manager by both the Ontario and Alberta Securities Commissions. He holds an MBA and Engineering Degree (With Honours) and is a member of the CFA Institute and the Professional Engineers Society.
Jeff has over 15 years capital markets experience. Prior to founding Frontwater, he served as Senior Director, George Weston Limited where he led mergers and acquisitions and was responsible for running a $500 million commodity portfolio using advanced derivative strategies and risk management techniques. Jeff currently works with a number of large corporations in structuring risk management and hedging programs.
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