The only way is up, so it seems

What an opening for the year: gold and oil almost simultaneously breaking records and reaching all-time highs. Rogue traders to blame, in the case of oil, as some seemed to suggest that it merely spiked on Wednesday. Difficult to be so sure of the circumstances, but one thing we can say for sure is we all saw it coming, sooner or later, for oil. For gold too. We live in a world of rising prices.

As for crude, it had been flirting close to the so-called psychological $100 mark in November, and then retreated before it traded briefly at that mark on Wednesday. To remind you, oil was trading at around $47 in the middle of January last year, so it has doubled in price within a year.

Gold had also been hovering close to its previous high of $850 of 1980, and hit a record of $861 an ounce on the very same day. Experts have attributed the spike in these two commodities to the softening dollar amid the growing tensions in Nigeria, Algeria and Pakistan.

It goes without saying that oil and precious metals have had a splendid run. Silver, uranium, palladium - they too have been going great guns. Foodgrains -wheat, corn and soyabean - have also broken records. Meanwhile, base metals have eased off.

Talking to local experts, watching business television, and reading research reports, I get a sense that faith in commodities is going to continue for some time. One American portfolio manager says gold has moved from just being treated as a hedge against inflation by investors to becoming a genuine investment alternative. If there was an allocation of 5 to 10 per cent before, now many big investors are willing to allocate close to 20 per cent.

With Asian and Middle Eastern economies expected to continue high levels of growth in the coming years, it is wise to put faith in commodities. With China and India leading the pack, demand for oil will only grow. Whether Opec and others will be sufficiently responsive in terms of supply is another matter. The suspicion must be that the fundamental price of oil will continue to be high and can only go up. The element of financial speculation also is an unknowable dimension.

As for gold, the demand for the precious metal in a country like India, which has the world's highest consumption, can only go up. With an increasing middle class prospering, demand for gold will rise.

Lastly, for raw materials and foodgrains too, again demand (and scarce supply) in the fast-developing nations with high growth rates will drive a rallying trend - whether the dollar goes up or down.

For investors, it might seem then that a judicious mix of the right kind of commodities in the portfolio can only bring positive returns.

Except that serious investors have already factored in those points, haven't they?

With Asian and Middle Eastern economies expected to continue high levels of growth in the coming years, it is wise to put faith in commodities. With China and India leading the pack, demand for oil will only grow.