Two painful lessons for commodity investors from 2011

This year’s sizeable falls in most commodity prices have highlighted two points that have actually been clear for much longer but are still not yet acknowledged by many commentators. First, even if some commodities are in the early stages of a multi-year “super-cycle” of rising prices driven by buoyant demand from emerging markets (an assumption that we at least question), prices can easily be blown off course for long periods by macroeconomic and financial factors. Second, the diversification benefits from commodities are much exaggerated – with gold perhaps still the main exception.