While Commodity Prices Retreated in August, Continued Demand in Key Markets Supports the Long Term Fundamentals of the Asset Class

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Sep 14, 2010, 10:40 ET

NEW YORK, Sept. 14 /PRNewswire/ -- Commodity markets pulled back in August as negative investor sentiment amid lackluster macroeconomic data resulted in short-term losses; however key indicators suggest fundamental supply and demand dynamics will support prices over the long term.

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Nelson Louie, Global Head of Commodities at Credit Suisse Asset Management, said, "Commodities declined in August as concerns over a slower economic recovery weighed on investors and demand for economically sensitive commodities like Crude Oil and Aluminum decreased across the globe. Meanwhile, indications out of other key markets suggested that demand for raw materials and manufactured goods remained robust. While economic uncertainty is likely to continue for some time, we continue to believe that fundamental supply and demand dynamics will support prices over the long term."

Christopher Burton, Senior Portfolio Manager for the Credit Suisse Total Commodity Return Strategy, added, "We expect correlations between commodities and other asset classes to dissipate from previously elevated levels and in fact, intra-commodity correlations have already begun normalizing. In addition, the potential for accommodative monetary and fiscal policy seems greater, yet inflation expectations appear to remain anchored. In this type of environment, the potential that inflation will rise at greater than expected levels could pose a significant concern for investors. We believe investors will continue to seek the diversification benefits provided by commodities, along with their potential inflation hedging abilities."

The Dow Jones-UBS Commodity Index Total Return fell 2.55% in August, bringing the year-to-date performance to -5.93%. Overall, 10 of the 19 index constituents increased in value. Agriculture commodities were pushed higher by severe weather conditions and supply concerns – seen most prevalently in Cotton, whose price reached 29-month highs, and Corn, which was up 7.74% for the month. Economically sensitive commodities, especially those in the industrial metals complex, performed poorly, led lower by Aluminum and Nickel, down 5.73% and 2.19%, respectively. The Precious Metals sector drove the index higher. As economic uncertainty prevailed for the majority of August, Gold and Silver rallied. Gold returned 5.62%, propelled by the World Gold Council's announcement that bullion demand increased by 36%. Silver rose 7.62% for the month.

The Credit Suisse Total Commodity Return Strategy group periodically produces updates on relevant industry topics. For a copy of their latest white paper, "Capitalizing on Any Curve: Clarifying Misconceptions About Commodity Indexing", please email [email protected].

About the Credit Suisse Total Commodity Return Strategy

Credit Suisse's Total Commodity Return Strategy has been managed for fourteen years and seeks to outperform the return of a commodities index, such as the Dow Jones–UBS Commodity Index Total Return or the S&P GSCI Total Return Index, using a quantitative commodity research process. Commodity index total returns are achieved through:

Spot Return: price return on specified commodity futures contracts;
Roll Yield: impact due to migration of futures positions from near to far contracts; and
Collateral Yield: return earned on collateral for the futures.

As of August 31, 2010 the team managed approximately USD 5.7 billion in assets globally.

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