Copper, gold best in 2010

2010 is coming to a close. The year was mainly a recovery period for the global economies. That showed in the investments also. Many investors in 2010 recovered from the global meltdown panic and the impact which left thousands of people in misery.

However, this year saw several stellar performances by commodities and some very bad turns. For example, copper has been on a roll for years. Five years ago it cost $1.20 per lb, and now it is $4. In the last year alone the price has soared by a third, which is great news for Chile, the world’s biggest producer, as few other countries are able to step up production.

Again, take the case of gold. Gold’s attraction is all about lack of trust in money. When governments borrow like there is no tomorrow, and then start buying back the IOUs they sold to banks - which is what quantitative easing (QE) is - then the nervous investor will be buying up the yellow metal.

The financial crisis was almost designed to show gold’s scarcity in its best light and the price reflects that. Gold has risen from $1,150 to $1,400 per ounce, having climbed from $300 back in 2001. It looks pretty expensive, but then it did last year too. Still, now that US government bonds have started to offer better yields, the opportunity cost of holding gold is climbing.

This has been a so-so year for the average share-based investor, something that shouldn’t be a surprise after the huge gains of 2009. The FTSE 100 looks to be on target for 8-9% for the year, including dividends, smack on the long-term average.

However, some sectors have done much better than that. Britain’s manufacturers are making hay from the global economic recovery and the competitively valued pound.

Food commodity prices have jumped, just as metals did, though for partly different reasons. Grains, in particular, were spurred by a scorching summer and disastrous harvests in Russia and the Ukraine. This was followed by an export ban across much of central Asia, which had a knock-on effect on meat prices because grain is the single biggest cost in feed. Wheat prices, for example, jumped by 40% between June and August.

If you take into consideration the disastrous investments, Greece’s financial difficulties may seem remote but the heavily indebted nation that cooked its books to even get into the euro has added an extra burden to all European banks, including those UK ones that we taxpayers bailed out.

Add in Portugal, Ireland and, at some point, Spain and there are huge extra strains on the banking system from property losses in those countries and holdings in national government bonds.

UK bank shares have now given up most of their 2010 gains as this reality sank in.