This is a couple of days old, but I don't think it's been posted -
WSj
A Commodities Rally Isn't Carved in Stone
With Another Bad Year for Raw Materials' Returns, There Is No Reason to Think 2014 Will Be Any Better
By
Liam Denning
Dec. 2, 2013 12:30 p.m. ET
If the market had its own Ten Commandments, near the top would be "thou shalt revert to the mean"—or, what goes up must come down and vice versa.
Commodities bulls betting on this lifting their favorite investment out of its funk need to ask themselves where that mean is, though.
It looks like commodities in 2013 will rack up their second consecutive year as the worst-performing asset class in terms of risk-adjusted returns, according to Deutsche Bank. The Dow Jones- UBS Commodity index is down 10% so far this year.
But hope is one commodity that never runs out on Wall Street. As Deutsche Bank noted Monday: "Given the tendency of past losers to become future winners, this might imply a more constructive outlook" for next year.
There is little fundamental support for a recovery, though. U.S. natural gas, oil and related products, copper, aluminum, gold and silver account for 61% of the DJ-UBS index.
Natural gas's dashing of hopes for a recovery has become a cruel cliché at this point—and continuing increases in production despite low prices suggest 2014 will bring more of the same. With oil, output is now rising so fast that the Organization of the Petroleum Exporting Countries cartel may soon have to agree to production cuts to avoid infighting.
Meanwhile, aluminum is chronically oversupplied and copper looks set to join it at least for a few years as mining expansions reach fruition. As for gold and silver, 2014 will likely see the Federal Reserve rein in its bond-buying program, suggesting real interest rates will rise, pressuring precious-metal prices further.
Above all, in historical terms, prices for copper, oil and gold aren't even that cheap—they only look so compared to recent dizzy peaks. Somewhere in those alternative commandments is another instruction for investors: Thou shalt not catch a falling knife.
Write to Liam Denning at liam.denning@wsj.com
