Metal and crop prices are poised to rebound in 2014 as accelerating economic growth boosts demand, helping to staunch this year’s record retreat for investments in commodity-focused funds.
Average annual prices for 15 of 23 non-energy commodities from aluminum to sugar will be higher than now, according to estimates from as many as 26 analysts compiled by Bloomberg. Corn may rise as much as 21%, platinum 24% and nickel 20%, based on the median of trader and investor forecasts in a survey that asked as many as 59 respondents to predict next year’s peak price for each of 15 raw materials.
Corn, silver and gold dropped the most in 2013, and five more raw materials tumbled into bear markets as output rose and investors shifted to equities. Commodity-fund investments fell by a record $88 billion to $332 billion in the first 11 months, almost all of it in metals and agriculture, Barclays Plc says. While Goldman Sachs Group Inc. says supplies are mostly ample and Bank of America Corp. expects more losses, global manufacturing is the strongest since April 2011 and the International Monetary Fund says world growth will quicken.
“It’s a good time to come into commodities,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $340 billion of assets. “This is the first time in the recovery that we’ve had simultaneous positive and accelerating growth in the U.S., Europe, Japan and the emerging world all at the same time. That’s a pretty big demand change. But until people kind of pick up on the fact that commodities can come back, you’ll still see some people sticking a little more to stocks.”
The Standard & Poor’s GSCI Spot Index of 24 commodities fell 1.6% this year, the first drop since the global recession in 2008. Corn declined 38%, poised for its worst year in at least a half century, and silver’s 36% rout puts it on track for the biggest loss in more than three decades. Gold, down 28%, is heading for its first annual slide since 2000 and was the biggest contributor to the contraction in commodity investments in 2013.
Investors added instead $8.72 trillion to the value of global equity markets, taking valuations to the highest since 2007 and driving the S&P 500 to a record, according to data compiled by Bloomberg. The MSCI All-Country World Index of equities rose 19% this year, and the Bloomberg Treasury Bond Index lost 3%.
The global economy will expand 3.6% next year, from 2.9% in 2013, the Washington-based IMF said in a report in October. China, the biggest consumer of everything from soybeans to copper to cotton, will grow 7.5%, according to the median of 53 economist estimates compiled by Bloomberg. While that will be a fourth year of slower growth, the pace is still almost three times that of the U.S.
The global manufacturing purchasing managers index tracked by JPMorgan Chase & Co. and Markit Economics rose in November for a fifth consecutive month, data showed Dec. 2. That same day, the Institute for Supply Management reported U.S. manufacturing accelerated at the fastest pace in more than two years, while export orders reached a 21-month high.
Economic growth may not be enough to end the slump. There will be “significant” declines through next year for iron ore, gold, soybeans and copper, Jeffrey Currie, Goldman’s head of commodities research in New York, said in a Nov. 20 report. Currie said Oct. 8 that gold, headed for its biggest drop since 1981, was a “slam dunk” sell for 2014 as an improving U.S. economy reduces the need for the metal as a store of value.
After a decade in which the S&P GSCI Spot Index more than doubled, reaching a record in 2008 as producers failed to keep up with demand, that “super cycle” of gains has ended because supply has caught up, Citigroup Inc. said 13 months ago.