Investors almost doubled purchases of commodities this year, at a time when Goldman Sachs and Morgan Stanley are forecasting higher prices and Citigroup says the best returns are over.
Money invested in commodity funds increased by US$21.6 billion this year, up 92 per cent from the gain in 2011, according to Massachusetts-based EPFR Global, which tracks the flows. Hedge funds' bets on a rally are 51 per cent bigger than a year ago, US government data shows.
While commodities are headed for their first annual retreat since 2008, growth in emerging markets will boost demand and tighten supply, Goldman Sachs' analysts said in a report this month.
The Standard & Poor's GSCI gauge of 24 raw materials almost tripled in the past decade as producers failed to keep up with consumption.
That "super cycle" of returns has now ended because China is growing more slowly and supply has caught up, Citigroup's analysts said in a report last month.
"It comes back to the uncertainty about the economy, and the government policies that are going to be enacted or potentially changing over the next year," said Peter Jankovskis, the co-chief investment officer at Illinois-based Oakbrook Investments.
"That's why you're seeing that disparity in the outlooks of many of these forecasting firms."
The S&P GSCI fell 0.9 per cent this year, the worst performance since a 43 per cent drop in 2008, with the biggest declines in coffee, cotton, sugar and crude oil. The MSCI All-Country World Index of equities advanced 13 per cent and the Dollar Index, a measure against six major trading partners, dropped 0.9 per cent.
The declines in crude and gasoline are driving the S&P GSCI lower because energy accounts for about 70 per cent of the gauge by weight.
Eighteen members of the index advanced this year, led by gains of 23 per cent or more in wheat and soybeans as US farmers endured the worst drought in a half century. Gold is headed for a 12th consecutive annual increase, driven by central bank stimulus.
"Commodities tend to be victims of their own success," said Jack Ablin, the chief investment officer of BMO Private Bank in Chicago. "If you think about industrial metals, we have now dug a little deeper, and mined a little more, and now we have unprecedented inventories."
* Bloomberg News