Commodities Corner: Gold’s not the only safe-haven commodity

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SAN FRANCISCO (MarketWatch) ?€" Gold has climbed by a phenomenal $339 an ounce since the start of July, proving its worth as a safe-haven investment, but the yellow metal isn?€™t the only commodity that can offer a refuge for investors.

?€œAfter all, no matter what happens to paper markets, physical commodities will still be in demand,?€ said Jason Schenker, president and chief economist at Prestige Economics LLC.

/quotes/zigman/627449/delayed DJIA 10,817.65, -172.93, -1.57%
/quotes/zigman/661658 GC1Z 1,855.30, +33.30, +1.83%
/quotes/zigman/1741627 C1Z 725.00, +12.00, +1.68%

Gold and corn rally as the Dow sinks

Gold prices /quotes/zigman/661658 GC1Z +1.83% are up 28% year to date. Other commodities have seen impressive gains as well, despite the bloodbath in the U.S. equities markets and often grim news on the global economy.

Year to date, silver?€™s /quotes/zigman/704345 SI1U +5.51% up 31%, corn /quotes/zigman/1741627 C1Z +1.68% has added 13%, coffee?€™s /quotes/zigman/1749752 KC1U -0.66% up 10%. Heating oil?€™s /quotes/zigman/2075596 HO1U +1.79% added 13% and gasoline?€™s /quotes/zigman/2075611 RB1U +3.03% up 18%.

?€œIndustrial metals, precious metals, and energy commodities are all real assets that are consumed,?€ said Schenker. ?€œThey are also much more homogeneous and fungible than other specific investments of a given financial asset class. As such, they are all a bit safer in the long run.?€

Over the past 12 months, the Thomson Reuters/Jefferies CRB Index /quotes/zigman/1680081 XX:CRY +0.93% , which tracks 19 commodities representing all commodity sectors, has climbed more than 20%. The Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA -1.57% is up just 5.5% for the same period.

Gold breaks $1,800 barrier

Equities and gold are moving in opposite directions to degrees not seen since 2008. Gold is becoming a favored asset as investors become increasingly wary of stocks and bonds.

The ?€œsafe?€ commodities are those with consistent demand such as food, those with inelastic supply that can?€™t easily expand to meet rising demand, including coffee and cocoa, and metals with restricted supply locations such as platinum and palladium, said Christopher Ecclestone, a strategist at Hallgarten & Company LLC.

?€œThe most dangerous commodities are those that have run up on purely financial factors,?€ he said, adding that gold and silver have led that pack. ?€œAny removal of liquidity can cause a slump.?€

In a class by itself

The implication that gold and silver may be ?€œdangerous?€ commodities would certainly be hard for some investors to swallow. The words ?€œsafe haven?€ in the commodities world has been synonymous with gold ?€" and silver too. Read about central banks?€™ recent gold purchases.

?€œSafe haven, to me, means that [the investment] will hold up if the economy tanks,?€ said Chris Mayer, editor of Capital & Crisis. ?€œI can?€™t say that is true for any other commodity.?€

Gold and silver were among the very few markets that managed to post gains on Thursday, with prices for gold up 1.6% as the Dow Jones Industrial Average /quotes/zigman/627449/delayed DJIA -1.57% dropped 3.7%. Read about Thursday?€™s stock market action.

?€œNothing rivals gold?€™s safe-haven appeal at the moment,?€ said Evan Smith, co-manager of the U.S. Global Investors Global Resources Fund /quotes/zigman/244712 PSPFX -0.59% . ?€œGold?€™s drivers are financial not industrial use, so it is going to be insulated from fluctuations or downgrades in growth,?€ while the bulk of copper and oil usage is industrial so those commodities are ?€œmuch more susceptible to swings in economic growth.?€

And with economic growth seeing a slowdown around the globe, investors in economically linked commodities do have a lot to worry about.

?€œMany commodities are particularly vulnerable to a slowdown or double dip,?€ with copper, iron ore, coal, lead, zinc and nickel likely among them, said Mayer. Read Mayer?€™s latest thoughts on commodities.

It?€™s ?€œno surprise that China is a huge buyer of these ?€" on the order of 35%-50% of world consumption depending on the commodity,?€ he said. ?€œChina is slowing down too so it makes sense that these commodities would be hard hit.?€

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