The Case for Commodities in 2010 (And Beyond)

by Frank Holmes, CEO, U.S. Global Investors

Simply put, an investment in natural resources is a vote of confidence in global economic growth.

- Just over half of the world’s people now live in cities – that figure is likely to rise to 70 percent over the next four decades. The urban population in emerging nations has expanded by an average of 3 million per week for the past 20 years.

- More than 13 million cars and light trucks were sold in China in 2009, transforming a land once dominated by bicycles into the largest auto market in the world. Forecasts for 2010 call for vehicle sales to increase by as much as 10 percent.

Commodities (as measured by the Reuters-Jefferies CRB Index) shot up 24 percent in 2009, the largest single-year increase since the early 1970s, and the International Monetary Fund projects that prices will keep rising this year due to emerging-markets demand and global economic recovery.

Commodity supercycles typically last 20 to 25 years – the current supercycle began in 2000, so we are just at the halfway mark. A stress in the markets is that insufficient capital has been invested in resources in recent decades, while at the same time the world’s population has doubled and there has been spectacular growth in the middle class. Any supply disruptions quickly lead to price spikes.

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