The Dow Jones-UBS Commodity Index ended up 0.99% for the month of August after investors on both sides of the pond looked to commodities as a safe haven for funds.
Perpetuating the activity was the fact that Standard & Poor’s downgraded the credit rating for the United States from AAA to AA+. Some felt the move by S&P made investments in U.S. Treasuries – usually considered a favored secure investment because they’re government backed and dollar-denominated – more risky.
Coffee, corn and gold had the strongest gains with month-end returns of 18.51%, 13.57%, and 12.29%, respectively.
Physical commodities such as food are favored in uncertain economic environments because of their consistent demand. Coffee futures reached their highest prices in over three months in August. In addition to concern about the economy, market participants took notice after the International Coffee Organization said that world coffee exports fell to 7.35 million bags in July from 8.2 million bags a year earlier, indicating that global supplies may be limited. Further, it was announced that Vietnam had cut its 2011 export forecast to 1.17 million metric tons from 1.2 million tons.
The gain in corn for the month of August was the largest since the agricultural product rallied 18.7% in December. Corn rose in tandem with soybeans on concerns that the summer heat would cut product yields.
Gold has been reaching new highs for about the last 10 years. A decline in consumer confidence helped to fuel the latest move higher. The Conference Board’s Consumer Confidence Index for August indicated that the consumer confidence index dropped 14.7 points during the month, down 24.8 percent, to reach 44.5. That is the lowest level since April 2009.
The three most significant downside performing single commodity indexes were orange juice, tin and nickel, which were down 17.48%, 13.28%, and 11.25% respectively, in August.
Orange-juice futures fell on signs that groves in world’s second-biggest citrus grower Florida could escape damage from Hurricane Irene as the storm’s track shifted east. Some market participants also took profits off the table. The commodity has climbed around 20% in the past year.
Base metals such as tin and nickel lost ground in August as some investors looked to conditions in Asia. Barclays Capital analysts noted in written research released August 26 that signs of tightening fundamentals across several base metal markets in China offered “firm countenance to further macro sentiment-led declines.” Barclays analysts wrote that the health of emerging market growth will be most important for fundamentals.
Year to date, the Dow Jones-UBS Commodity Index was up 1.26% with the Dow Jones-UBS Silver Sub-Index posting the highest gain of 34.61% so far in 2011, thanks largely to the rush to precious metals as a hard asset amid shifting financial conditions. Dow Jones-UBS Wheat Sub-Index had the most significant downside YTD performance, down 16.83% amid perceptions that wheat is well supplied.