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July 20, 2011

Dispersion of Commodity Returns
By Gregory Leonberger, FSA, Director of Research

For all the press coverage of rising gold and oil prices, commodity prices during the first half of 2011 showed a tremendous degree of dispersion across different sectors. Silver saw the greatest increase in value as it rose by more than 12%, but wheat fell by more than 26%, thus creating a spread between best and worst of almost 40%. Despite hitting a price of $1,600 / ounce earlier this week, gold rose by less than 6% through the first 6 months of 2011; in fact, only 6 of the 14 commodities on the chart actually increased in price. The main take away from this chart? Commodity investors must have a keen understanding of their underlying exposures, as the large dispersions of individual commodity returns can lead to vastly different results across products and strategies.

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