Commodities Corner: Commodities falter in 2011, hold promise in 2012

By This e-mail address is being protected from spambots. You need JavaScript enabled to view it , MarketWatch

SAN FRANCISCO (MarketWatch) ?€" Commodities were a big disappointment in 2011 with many poised for hefty losses, but some turned out to be surprisingly resilient during a year that was tough for all asset classes.

The year started out well. Gold futures were basking in the aftermath of a 30% advance in 2010, silver had just seen a hefty 84% jump, oil?€™s yearly climb was pegged at 15% and there was talk of $2,000 gold, $50 silver and $100 oil.

/quotes/zigman/656382 GC2G 1,567.00, +26.10, +1.69%
/quotes/zigman/2203132 CL2G 99.06, -0.59, -0.59%

Now, as the year draws to a close, some commodities have little to show for it. Gold /quotes/zigman/656382 GC2G +1.69% and oil /quotes/zigman/2203132 CL2G -0.59% are poised for their smallest year-on-year gains in years. Futures prices for silver /quotes/zigman/656950 SI2H +2.03% , copper /quotes/zigman/654297 HG2H +1.78% , platinum /quotes/zigman/2304887 PL2J +2.66% , palladium /quotes/zigman/2304934 PA2H +5.14% , wheat /quotes/zigman/1815272 W2H +1.24% , soybeans /quotes/zigman/1824459 S2H +1.27% , cotton /quotes/zigman/1778979 CT2H -0.27% , cocoa /quotes/zigman/1750706 CC2H +1.15% and sugar /quotes/zigman/1778982 SB2H -0.85% are ready to log double-digit declines for the year, with natural gas /quotes/zigman/2199342 NG12G -1.95% leading the pack lower, down more than 30%.

?€œThe past 12 months have been a difficult period punctuated by contradictory indicators and cross-currents,?€ said Frederick Fromm, portfolio manager of the Franklin Natural Resources Fund /quotes/zigman/159106 FRNRX +0.43% /quotes/zigman/398902 FNCRX +0.44% and Steven Land, portfolio manager of the Franklin Gold and Precious Metals Fund /quotes/zigman/226966 FKRCX +1.47% /quotes/zigman/259690 FAGPX +1.49% .

Gold, commodities poised to rise

Michael Cuggino, manager of the Permanent Portfolio Fund, says commodities have been oversold. He tells Jonathan Burton that investors in 2012 will boost prices of gold, copper and other commodities to reflect modest, but real, economic growth. Photo: Getty Images.

?€œEconomically-sensitive fuels and industrial metals have been deeply and negatively impacted by the darkening economic outlook since the spring of 2011, counterbalanced by resiliency in the price of gold and several agricultural products,?€ they said in emailed comments.

Coffee /quotes/zigman/1778980 KC2H +1.00% and frozen orange juice futures /quotes/zigman/1778981 OJ2H +0.18% were also lower year to date. Tracking the sector as whole as of Thursday year to date, the Thomson Reuters/Jefferies CRB Index /quotes/zigman/1680081 XX:CRY +0.25% was down more than 8%.

However, gold futures were 8.4% higher for the year, oil was up 9.1% and milk futures /quotes/zigman/748352 DA2F -0.58% , though they trade on very low volume, were a standout, up more than 27%. Read more on the outlook for gold.

Futures prices for heating oil /quotes/zigman/2213275 HO2G -0.59% , gasoline /quotes/zigman/2213278 RB2G -1.21% , corn /quotes/zigman/1824778 C2H +1.45% , live cattle /quotes/zigman/999929 LC2G -0.45% , feeder cattle /quotes/zigman/4331295 FC2H -0.65% and lean hogs /quotes/zigman/973323 LH2G +0.45% were also set to end the year higher.

Promising future

The year ahead offers the potential for commodities to bounce back or see further gains, some analysts said.

?€œAs we close the year, evidence is mounting that the U.S. economy is faring better than that in Europe,?€ said John Person, president of NationalFutures.com. ?€œThis trend could continue into 2012. Asian economies, specifically China, could continue to help support the global markets, if they take their foot off the tightening brakes.?€

?€˜Milk futures are leading the pack in the commodity arena for 2011.?€™

David Pankiw, Cubic Financial Advisors

In Japan, the economy is also in ?€œrecovery mode?€ after the devastation from the earthquake, tsunami and nuclear disasters, he said. ?€œMany forget that this rebuilding could spark a bid or continued demand for steel, copper and coal?€ ?€" raw commodities needed for rebuilding their infrastructure and helping to support their energy demand. Read about oil?€™s balancing act for 2012.

Person also said he?€™s bullish on crude oil and the agricultural sector, including corn, wheat and cattle. ?€œThis year?€™s drought in Texas really took a toll on beef producers,?€ he said. ?€œWe could be paying by late spring the highest prices ever.?€

/quotes/zigman/656382