Many long term indices show commodities as a good long term trade.
From 1970, the S&P Goldman Sachs Commodity Index has risen 529.55%.
From 1956 to 2009, the Commodities Research Bureau Index rose 154%.
Factoring in inflation reveals a different story. Adjusting the CRB
Index to take into account the US Consumer Price Index, the standard
measure of inflation, the CRB Index fell 67%. If you invested £100 in
the index in 1957, you would be left with just £33 in 2009.
Equities tell a similar story. Since the S&P 500's launch in 1957,
the equity index has increased 2653%. But US equities in real terms
increased 5.5% over the past 50 years, according to the Barclays
Capital Equity Gilt Study 2010, not much of an improvement from
putting your cash under the mattress.
Those who urged investors to buy into commodities in the 1950s have
long since retired. One investor still dominating the headlines,
Warren Buffet, has tended to stay clear of commodities. This changed
in 2008, when the Sage of Omaha bought a $4bn stake in Iscar, an
Israeli-based metal cutting tools firm. In the following year, Buffet
spent $26.3bn on Burlington Northern, the biggest rail transporter of
coal and corn in the US.
Buffet's play on commodities has worked out, with the CRB Index
gaining over 100% in 2010, but the doubling of your £33 still leaves
you short of your original investment.
Jim Rogers, another veteran investor, remains convinced the
commodities bull market will continue, predicting gold reaching $2,000
per ounce. Gold is currently $1,371 per ounce. A recent research paper
from Standard Chartered listed 10 reasons why the first quarter of
2011 could be the best yet for commodities, including a lack of supply
and a surplus of cash.
In the short term, commodities look like a good bet. You may even get
your money back.
Source: Efinancialnews.Com
