Wednesday 21 July 2010

How Have Commodities Performed ?

So, if not AAA, tax-free, index-linked bonds, what do people do with their £££ ? Commodities have been the big story for several years now, what with oil hitting $147 in '08, and food prices also soaring that year: and then there's Mr 'Cocoa' Ward in the news.

At the end of last year, devotees of the 'V-shaped recession' theory r
eckoned that commodity prices, seen as a leading indicator, must surely go storming ahead. Well, the figures for 1st Half 2010 are now in, and they didn't. [source: Goldmans / Reuters]

Inevitably, most punters don't invest in physicals - where would they put it ? - but use commodity funds based on futures contracts. Gold & Silver aside, the only commodities to do well on this basis were coffee and cattle.

Everything else did badly or indeed very badly. One of the problems is the cost of 'rolling' ea
ch month, from the expiring futures contract to the next one. Wiki calls this the 'roll yield' and starts by explaining how it can make you money ... when the forward curve is in backwardation. But of course you lose money when it's in contango. And on average ? Since 2000, the Goldman Sachs Commodity Index has shown a negative roll return in all but 23 months, i.e. 80% of the time, losing on average around 1% per month; and it's been that way all this year so far.

That's a big disadvantage to carry into the game. What's a retail punter to do ?

Which brings us to, *ahem* ...


* for the avoidance of doubt, 'ahem' does not constitute advice


Steven_L said...

Equities! During inflation I reckon you'd want stocks like Sainsburys.

Bill Quango MP said...

Cocoa? Gold? I've got it!
Invest here!

Anonymous said...

Lead and Brass are always a good choice.

Elby the Beserk said...

Opium futures. Hot tip from the Taliban.

Sebastian Weetabix said...

Those of us who actually use physical silver in our products are getting mighty pissed off with the inexorably increasing costs due to all you bloody speculators in the city (Ag oxide is the only electrically conductive metal oxide, so pure silver flake forms a vital part of conductive adhesives) . Back in the good old days, after the Hunts got their fingers burned, we had lovely stable(ish!) prices for years.

It's getting very hard for a chap to make an honest living.

Nick Drew said...

doubly problematic for you industrialists SW, because the mood of the moment is increasingly to invest in physical precious metals

the premium for physical- over paper-gold etc ('utility value' in the jargon) is increasing significantly, because of growing concerns over hanky-panky in the paper markets

Budgie said...

Gold is great where civilisation is teetering (eg when the legions left, and the Saxons were raiding).

Nick, are you really saying that's where we are? Isn't it a bit precious to maintain the world is on the brink of collapse?

If our civilisation does, in fact, disappear, food, water, tools etc will be much more important than gold. It follows that cocoa beats gold.

Bill Quango MP said...

Looks like we were right on the Ocado ND..
Not a disaster, but not a triumph either.

Andrew B said...


The right thing to do is to buy
terry's all gold ?

Nick Drew said...

Budgie - check the 5-year graph of gold price (any major currency), bit of a trend, wouldn't you say ?

if you were given that graph without dates on the axis, I reckon you'd have a real hard time identifying from it (a) the oil-price spike of '08 or (b) the banking crisis per se

which all in all, I contend, is interesting

as to teetering, well, in an interview less than 2 years ago, at a time when many still thought the banking issue was a little local difficulty confined to the financial sector (see the questions posed in the interview - amazing how short memories are) I predicted fighting in the streets and I don't see any reason to change that view - watch QT tonight to see how the rabble is being roused

Nick Drew said...

Bill - I bet you the Ocado crew are (retrospectively) congratulating themselves for hyping this up above the half-billion

AB - you might say that ... I couldn't possibly give advice :+)