• INSIDE THIS ISSUE
• 
• Opening Article
• 2011: A Year in the Balance
• 
• Economics
• A Major Macro Experiment
• 
• Equities
• The Hangover Part II
• 
• Commodities
• Almost
• 
• Currencies
• Standing Still?
• 
• Special Article
• The Folly of Predictions
• 
• MASECO Update
• 
• Indicators
• 
• Contact & Disclaimer

Commodities: Almost

Amidst the turmoils throughout the financial market during 2011, some speculated that commodities would see some historic barriers broken. However, the speculations remained unfulfilled.

Gold closed the year at $1,565 per troy ounce, somewhat disappointing the gold bugs who were hoping it would break through the psychologically significant $2,000 barrier. The high for the year (and an all-time high) was reached on September 4th at $1,923, when only a 4% rise would have seen it pioneer the unchartered $2,000s.

The close was not far off the average for the year of $1,572. In our most recent Investment Quarterly we explored the reasons that gold had slid since its September high, considering that margin calls might be forcing sales of the yellow metal, and thus increasing supply; or that investors may simply be cutting and running with the profits – gold investors have had an epic rise since March 2007 when it was trading in the early $600s. That said, there remains significant uncertainty in Europe, and gold therefore retains its allure for some as a safe-haven investment.

The Swiss have put in place capital controls on their currency to check its rise as a safe-haven investment. No such restrictions can be imposed on gold. Some bugs are predicting $2,200 within the next few months. We refrain from forecasting, but it will be interesting to see if the gold bugs or bears win in 2012.

Black Gold

Oil closed the year at $99.03, but on the first day of trading in 2012 it rose by 4.2% to $103.26, marking an eight-month high. The rise has been fairly steady since an October 2nd low of $76.38. Oil’s price volatility remains high, and looks set to stay that way. Geopolitical risk continues to be the main driver of the current rally, but there is a danger that further price increases will reach a tipping point when the global consumer can no longer stand the inevitable price hikes on consumer goods. As and when tensions in the Middle East ease, we could see a disorderly sell-off. Equally if tensions increase, we could see further spikes. The only prediction we can make for 2012 is that volatility in the price of oil will remain high.

Influence of the Greenback

Market speculators are currently holding a record short EUR against the USD position in response to the current problems in Europe. However market sentiment is a fickle beast, and this could change quickly, particularly in a US election year. If the position is reversed, and there is a USD sell off, we could expect to see a positive impact on the price of commodities, at least in the short term.

Farmers’ Market

The UN FAO food price index rose by 68% in February 2011 from its 2009 low. This precipitated a massive response from farmers across the globe, who, assisted by improved weather conditions, planted record amounts of crops leading to much improved inventory levels. This pushed prices down, with only corn showing a positive return on the year. Cocoa and sugar were the worst performers, as increased supply was not met by increased demand due to a combination of European woes and the strengthening dollar.

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