Update February 2008 Commodities

Gold:
Gold has always been highly valued due to its rarity, appeal and because it will not tarnish or rust. Because of these same reasons it is known as a symbol of and storage of wealth. Stored gold is usually gold bullion held in bank vaults. Until 1971 a nations currency valuation was in part based on the amount of gold reserves that country had; the Bretton Woods system.

The primary suppliers of gold in the world are South Africa, Australia, the USA and Latin America.
update feb 2008
Source: world gold council
The price per ounce of gold has more than doubled in the last seven years and this has been caused by a variety of factors. For example there has been a 11% rise in the demand for gold for use in electronic goods in the past few years and according to the world gold council supply fell 13% between 2005 and 2006 primarily because of many central bank’s reductions in the de-cumulating of their gold stocks since 2006.

Gold is increasingly being used to diversify investors portfolios and as a hedge against both inflation and dollar exposures. Whilst the price of gold has increased rapidly in the past few years, most do not see it as an opportunity for a ‘quick buck’ but as a way of delivering more secure long term capital growth.

On the 3rd of January this year gold reached an all time record high of $865.35/oz, breaking the previous record of $850/oz set in 1980. Since January 2007 gold has increased in price by approximately 37% and has greatly outperformed the FTSE 100 in terms of percentage return on investment over the last year as shown by the chart below.
gold v ftse 100
Source: Financial Times

Silver:
Silver is not used as a store of wealth in the same way that gold is, as it is approximately fifty times less expensive than gold, but it has followed the same price trend as gold, and is used extensively in jewellery, cutlery, photographic film, and electrical devices. At the time of writing silver was priced at $16.7/oz and its price had increased rapidly since late summer last year.

Platinum: This metal has greatly outperformed the FTSE 100 in terms of percentage return on investment as can be seen from the chart on the following page. Since 2005 this metal has increased in value by more than 60% and is currently priced at just under $1700/oz making it twice as expensive as gold. The largest user of platinum is the automotive industry which uses platinum in catalytic converters on cars and trucks. Platinum is extremely rare and has been dubbed ‘the rich man’s gold’. Its rarity can in part be attributed to the fact that nearly 90% of all platinum comes from just South Africa and Russia
platinum v ftse 100
Source: Financial Times
As mentioned before, the single largest user of platinum is the automotive industry and with the increasing number of cars being bought in developing countries and the release of Tata Motors $2500 car in India demand for platinum is likely to continue to increase in the years ahead.

Wheat:
Over the past few months the prices of many agricultural commodities such as Corn, Cocoa and Sugar have rapidly increased. Over the past year wheat has nearly doubled in price and reached $13.27 a bushel following a 40% rise over the past two months. Top quality wheat inventories are expected to fall to the lowest level in 30 years and droughts in parts of the US have further aggravated this situation. This restriction in the supply of top quality wheat has spilt over into the lower quality wheat markets with lower quality soft wheat futures in Chicago recently reaching an all time high of $10.09 a bushel.
wheat v ftse 100
Source: Financial Times
This increase in the price of such a basic necessity has caused price rises in many other related food products such as bread and there are some concerns that these increases could lead to not only decreased consumption but increased inflation both in the UK and in other parts of the world.

Oil:
The price of a barrel of West Texas Intermediate (WTI) reached an all time high last November of $99.29 and has continued to remain above $80 per barrel since then.
oil
Source: tfc-charts.com
Whilst the economic slowdown in the US may dampen demand for oil, the ever increasing demand from developing countries may well outweigh the US and cause continued price increases. The 148th meeting of OPEC is scheduled to take place in Vienna Austria at the start of this month and many analysts will be waiting for any announcements to come out of it.

Aluminium:
With each Boeing 747 weighing nearly 200 tonnes and being primarily made of aluminium it is easy to see why this metal is one of the most traded and demanded commodities on the market. By summer 2007 the price of aluminium had increased nearly 50%, however since then it has steadily declined and the current futures price is nearer the early 2006 level of $2,642.5/ tonne.

Source: London Metal Exchange