Demand for real returns to bolster commodity prices further in 2010

Demand for real returns to bolster commodity prices further in 2010

Following a market sell-off in the second half of 2008, commodities recovered to deliver positive performance in 2009, according to Credit Suisse.

The firm believes that signs of economic stabilization and indications of growth in emerging markets may continue to drive demand and increased commodity prices through 2010.

Andrew Karsh, co-lead portfolio manager for the Credit Suisse total commodity return strategy, says: "One of the most frequently discussed themes in the commodities space in 2009 was the relationship between commodities and inflation. While official inflation expectations continue to be low, unprecedented government stimulus and swelling government debt loads in the US and elsewhere may eventually lead to inflation, and it is difficult to predict when inflation will pick up. History suggests inflation may rise much more rapidly than is expected and commodities are one of the few asset classes which can potentially provide a hedge against inflationary pressures in this type of environment."

The Dow Jones-UBS Commodity Index Total Return gained 1.98 per cent in December with the strongest returns coming from the industrial metals sector, bringing 2009 annual performance of the index to 18.91 per cent.

Sugar was the top performer in December, up 19.04 per cent, due to lower than expected supplies.

The worst performer in November was one of the strongest performers in December; nickel gained 12.79 per cent as popularity for industrial metals continued through the year end.

Natural gas reversed its downward trend and gained 11.85 per cent in December due to the increasingly cold weather, but ended the year as the worst performer, down 51.56 per cent.

Silver and gold were amongst the worst performers in the month, giving back most of their returns from November, down 9.06 per cent and 7.28 per cent, respectively. Despite this decline, both precious metals finished 2009 with positive results.

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