The commodity slump that spurred bear markets in everything from gold to corn to sugar this year will deepen by the end of December as prices head for their first annual loss since 2008, if history is any guide.
The Standard & Poor’s GSCI Spot Index of 24 raw materials fell in December 83 percent of the time since 1971 when the benchmark gauge was posting losses for the year through November, data compiled by Bloomberg show. The average December loss was 3.9 percent, which if it happened this time would mean a 7.8 percent drop for the year.
Investors pulled a record $34.1 billion from commodity funds since the end of December, according to EPFR Global, which started tracking the flows in 2000. Ample rains boosted global crops, increased mine output spurred supply gluts in metals and the U.S. is extracting the most crude oil since 1989. Economic growth in China, the biggest user of everything from soybeans to zinc to cotton, is poised to slow for a third year in 2013, according to economist estimates compiled by Bloomberg.
“It’s likely that the trend will hold through the end of the year,” said Michael Cuggino, who manages about $11 billion of assets at Permanent Portfolio Family of Funds Inc. in San Francisco. “Investors see anemic or slowing economic growth in the world’s mature and emerging-market economies, while there’s more supply on hand. That translates to lower prices.”
Fifteen members of the S&P GSCI are heading for annual losses, with grains and precious metals leading the declines. Corn tumbled 40 percent, on track for the biggest annual slump since the data begins in 1960. Gold is heading for the first yearly retreat since 2000 and silver is poised for the worst rout in three decades.
The commodity index fell 4 percent this year, while the MSCI All-Country World Index of equities jumped 18 percent. The Bloomberg U.S. Dollar Index, which tracks the currency against 10 major peers, gained 4 percent. This is the first time that commodities are trailing both shares and the dollar since 2005, when the data begins.
Since 1971, commodities fell in December 55 percent of the time, and averaged returns for that month of 0.1 percent. In the years when the GSCI is negative in the first 11 months, the December losses are magnified.
There will be “significant” declines through next year for iron ore, gold, soybeans and copper,Jeffrey Currie, Goldman Sachs Group Inc.’s head of commodities research in New York, said in Nov. 20 report.
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