Commodities prices post biggest annual gain in four decades on China demand

Commodities prices posted the biggest annual gain in four decades, led by a doubling in copper, sugar and lead prices, as Chinese demand compensated for the longest slump in the global economy since World War II. In 2009, the S&P GSCI Index of 24 raw materials rose 50%, the most since at least 1971, and commodities drew record investment of $60 billion, Barclays Capital estimated.

The CRB Index of 19 raw materials advanced 23% in 2009, the most since 1979. Among industrial metals, lead posted the biggest gain, more than quadrupling since end-1999. Copper also doubled in 2009, climbing almost fourfold in the decade. In 2009, gold futures in New York rose 24%, the 9th straight annual gain. The US dollar slump spurred demand for precious metals as an alternative investment. Crude oil prices advanced 78% in 2009. OPEC, which accounts for 40% of global supply, implemented production cuts in response to the global economic recession. Sugar futures more than doubled in 2009, trailing only copper's advance in the CRB index. Cane harvests in Brazil and India, the biggest producers, were hurt by adverse weather.

- It has been pretty good going for commodities prices ranging from gold futures to crude oil to agricultural commodites such as corn and wheat and sugar. It's been a great run even taking into account the Aug-Sep 2008 near global economic collapse. And of course taking into account how the economic system works, governments everywhere do not have much choice but to run the money printing presses, and fast. Which has led us to where we are today, with price inflation looming, the trillions in additional money supply having had the time to work through the economy and finally start appearing where most people least expect, and with economic fundamentals being nowhere near where they should be had this been a real, actual, bona fide economic recovery.

So, what's next? Believe it or not, the inflation vs deflation debate still rages on, though there are some signs that the inflation camp may just get their day in the sun, as long as the central banks especially those in the Western world keep up their monetization thing going, and the Eastern nations continue to follow suit, not wanting to hurt their export-oriented economies. According to the contrarian community and elsewhere, there is a danger of "something" happening in Q2 2010, what it is exactly, and what the impact may be, we have yet to see. Barring that, and of course perhaps a black swan event or two, we could have continuing rising prices alongside with asset inflation going into 2010. We shall see.

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