HellenicShippingNews 2010 was Up for Commodities, Will 2011 be Better?

As the year 2010 came to an end, it is interesting to look back and wonder how commodity markets (energy, the entire metals complex and agriculture) in 2010 were driven by a combination of factors including macroeconomic data, sovereign debt issues, differential monetary policies, demand strength, weather aberrations and currency dynamics. Cautious outlook at the beginning of the year has now gradually given way to robust optimism. An indication of growing confidence about growth prospects is that commodities production, consumption, trade and prices all hit new highs during the year.

Looking back, it is evident, the prices of copper and gold hit historical levels in 2010. Silver and sugar prices reached their 30-year highs. Demand strength has made a significant contribution to the price spurt in energy (crude and coal) as well as metals. Commodity prices have surged to record nominal highs in recent days and oil continues to consolidate near the $90 a barrel mark. It is important to realize that while most commodities are at record nominal highs, they remain well below their inflation-adjusted highs seen over 30 years ago during the stagflation of the 1970s.

Gold price rallied more than +28% in 2010, marking the strongest rise since 1979 when price more than doubled. There are two main reasons driving the metal higher: sovereign crisis in the European periphery and QE by the Fed. These two factors will continue to support gold next year. In 2Q10, gold made a record high of $1,266 as Greece was facing insolvency and the euro was threatened to be disintegrated. At that time, gold was trading in sync with US dollar, signaling extreme risk aversion. In early November and early December, gold also surged to all-time highs of $1,424 and $1,432 respectively amid resurface of sovereign concerns in the 16-nation region. Ireland was at risk and sought bailout from the EU/IMF in late November. However, it failed to stem contagious risks and the problem continued to spread to neighboring countries such as Spain and Portugal. The problem remains unresolved so far. While the post-2013 mechanism may be helpful in the future, EU finance leaders failed to agree on new initiatives to solve the current crisis.   more ...