CHICAGO, Jan 28 (Reuters) – Commodities are among the most
skittish investments. Not only do they react to global economic
forces, they can seesaw with supply and demand, China’s
voracious appetite for raw materials and the weather.
Since commodities are tangible things that are mined or
grown, they are hard to hold and often bought through futures
contracts, which have their own peculiarities. Yet what is
undeniable about commodities is that they are usually a good
tracker of broad economic growth, inflation among producer
prices and they run inversely to the dollar’s decline. You
should have a piece of them in your portfolio, but you have to
be careful about how you hold them.
Here’s how strange commodities are: Even though there was
growth nearly everywhere except for Europe last year,
commodities, as measured by the Dow Jones/UBS commodities index,
declined 1 percent. That compares to a resounding 16 percent
gain for the S&P 500 index of large U.S. stocks with dividends
Commodities prices have been following muted expectations
for the Chinese economy in recent years, which is now the
world’s largest consumer of raw materials.
Despite predictions last year that the Chinese export-driven
economy would cool down due to slack demand in the euro zone and
the U.S., according to HSBC, China’s 8-percent growth rate may
not slow down this year. The IMF reports that China is consuming
some 40 percent of base metals, 23 percent of agricultural
products and 20 percent of non-renewable energy resources.