While last year witnessed the return of equity in a big way, in terms of performance, commodities as an asset class was not too far behind too. Commodity markets witnessed a strong rally in 2009. Agri commodities , base metals, precious metals and crude oil saw sharp rise in prices.
Supply-related issues on account of below-average monsoons hiked the prices of agri commodities very sharply. Increased industrial activity backed by hopes of economic recovery helped the prices of base metals and oil move upwards. The weakness of the dollar turned out to be a boon for gold which gave phenomenal returns last year. Would commodities continue their upmove in 2010?
Most analysts predict that commodity markets should present attractive opportunities this year as supply-related issues in agri commodities, and demand for metals and oil will drive prices higher. Here are some factors that will affect the price movements of different commodities.
Agri commodities' prices have been on a continuous rise on account of shortages in food across the world. In India, bad monsoons led to supply shortages of commodities such as pulses , cereals, sugar etc and the situation was further aggravated by distributionrelated issues.
As a result, food inflation rose to a high of 20 percent in December 2009, causing anxiety to the government which is now taking steps to improve the situation. For example, sugar prices have touched new highs the world-over and production has dipped quite substantially .
In order to control speculative price movements, futures trading in sugar have been banned until September 2010.
The strong demand and limited supply of agri commodities is expected to keep the prices on the higher side this year too.
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