During the first six months of 2008, commodities looked to be the savior of investors who were losing money in the stock market. In the second half, particularly for those who had invested in oil, futures contracts were their undoing. At the start of 2009, commodities have little appeal. Most analysts expect prices to remain under pressure as worldwide demand continues to wane for basic materials of all kinds. "For commodities to do well, they need demand and they need present demand," said Matt Zeman, head trader at LaSalle Futures in Chicago. "Until we see the physical demand picking up, we’re going to have a hard time moving forward." Still, analysts expect the futures markets to escape the sharp price swings they saw in 2008. Analysts predict that the market will be more stable, which means consumers won’t pay much more for staples like gas and food, either. Commodities soared in 2008 — including oil reaching a once-unthinkable $147.27 a barrel in July and gold shooting up to a record $1,033.90 an ounce in March — on a wave of unprecedented global growth, especially the booming economies in China and India. Meanwhile, the dollar fell considerably against other major currencies, making commodities all the more attractive as a hedge against the weaker greenback. The volatility on Wall Street during the first half of the year also raised commodities’ profile, as hedge funds and other big investors poured into the futures markets hoping to grab hold of some big returns. But a large part of the buying, especially in the oil markets, was fed by speculators who believed that demand would soar. "People bought oil and commodities because they thought the rest of the world would continue to consume," said Phil Flynn, senior energy analyst with Alaron Trading Corp. "They were wrong. And they were wrong in a spectacular fashion." What happened Prices began to skid as it became clear that the U.S. economy was weakening rapidly — a trend exacerbated by the paralysis in the credit markets after the collapse of Lehman Bros. After setting its record March 17, gold dropped more than $300 an ounce to just under $705 in mid-November. Investors were alternately attracted by its reputation for holding its value and turned off by commodities’ tarnished image. At year’s end, it was trading at about $880. Wheat topped $12.70 a bushel in March, lifted in part by bad weather in several growing areas, but also on the belief that demand would increase in a wealthier global economy. By the end of the year, wheat was trading in the $5 range. Copper rode expectations of rising demand in China to a record of $4.22 a pound in early July. At year’s end, battered by the recession, it was trading under $1.30. What it means One factor that stands in the way of another commodities boom in the new year is that investors, having been so badly burned by the plunge in prices, are unlikely to flood back into the market. Signs of an improving global economy should give the futures markets back some strength, but the billions of dollars lost as speculative buyers fled the market have left many investors chastened.

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