The Commodity Investor: Ags & Gold Poised To Outperform In 2013, With The Yellow Metal Hitting $2500

December 12, 2012

Expect 2013 to be similar to 2012 when it comes to commodities in general and outperformers.


Commodities had a very mixed 2012. By and large, the asset class was slightly up or flat for the year, with the UBS Bloomberg CMCI returning 4.5 percent YTD; the S&P GSCI returning1.2 percent YTD; and the RJ/CRB Commodity Index down 1.6 percent YTD.

When you zoom in to specific sectors, the returns are even more mixed. In energy, Brent is down 0.49 percent, while WTI is down 12.98 percent YTD; natural gas is a winner so far for the year, being up 20 percent so far.

When you move to metals, we find relatively robust performance from the three key precious metals: Gold is up almost 9 percent YTD; platinum is up more than 14 percent and silver more than 18 percent. Agricultural commodities were the big winners for the year: Cocoa is up 24 percent YTD, corn is up 22 percent, soybeans are up 33 percent and wheat is up an astounding 45 percent YTD.


2012: A Year In Review

Hands down, the top performers in natural resources this year were agricultural commodities. A combination of increased demand from emerging markets and an intense drought in the Midwest pushed grain prices to record highs.

Specifically, as the rural-to-urban migration continues in key emerging market countries such as China, India and Brazil, demand for food continues to rise. In addition, rising incomes in these emerging markets are also pushing consumers to climb up the food chain, which is increasing demand for grains as feedstock for protein products such as poultry and beef. This in part helps explain the meteoric rise in grains and protein products this year.

However, this is only part of the equation. An unexpected drought in the United States, one of the most important food-producing countries in the world, has affected food prices at the production and retail level. Specifically, the drought that hit the Midwest was one of the most severe in the last 25 years, and it had a major impact on corn and soybean production, which in turn increased prices for livestock production (as feedstock prices increased).

As for metals, gold and silver both had a fairly lackluster year. The precious metals duo experienced mild volatility as the global economy shifted gears throughout the quarters, from surprisingly positive numbers in the U.S. to the disappointing performance of European economies. Central bank policies also contributed to the volatility, as well as mixed purchases from the traditional Asian buyers in China and India. In all, precious metals did not live up to their expectations in 2012.

The big story in the energy complex has been the widening WTI-Brent spread throughout the year. The spread stood at $10 in the beginning of the year and is currently at an almost-record $21. Brent has widely outperformed WTI, which is down 14 percent for the year. Going forward, 2012 may be remembered as the year that Brent overtook WTI as the world’s most traded and most used benchmark.


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