Investors almost doubled purchases of commodities this year, at a time when Goldman Sachs Group Inc. and Morgan Stanley are forecasting higher prices and Citigroup Inc. says the best returns are over.

Money invested in commodity funds increased by $21.6 billion this year, up 92 percent from the gain in 2011, according to Cambridge, Massachusetts-based EPFR Global, which tracks the flows. Hedge funds’ bets on a rally are 51 percent bigger than a year ago, U.S. government data show. Precious metals will lead returns in 2013, rising as much as 25 percent, as grains advance 18 percent and industrial metals 16 percent, according to a Bloomberg survey of 131 traders, investors and analysts across 15 raw materials.

While commodities are headed for their first annual retreat since 2008, growth in emerging markets will boost demand and tighten supply, Goldman Sachs’ analysts said in a report Dec. 5. The Standard & Poor’s GSCI gauge of 24 raw materials almost tripled in the past decade as producers failed to keep up with consumption. That “super cycle” of returns has now ended because China is growing more slowly and supply has caught up, Citigroup’s analysts said in a report last month.

“It comes back to the uncertainty about the economy, and the government policies that are going to be enacted or potentially changing over the next year,” said Peter Jankovskis, who helps oversee about $3 billion of assets as co-chief investment officer at Lisle, Illinois-based Oakbrook Investments LLC. “That’s why you’re seeing that disparity in the outlooks of many of these forecasting firms.”

Trading Partners

The S&P GSCI fell 1.1 percent this year, the worst performance since a 43 percent drop in 2008, with the biggest declines in coffee, cotton, sugar and crude oil. The MSCI All-Country World Index of equities advanced 13 percent and the Dollar Index, a measure against six major trading partners, dropped 0.9 percent. Treasuries returned 2 percent, a Bank of America Corp. index shows.

The declines in crude and gasoline are driving the S&P GSCI lower because energy accounts for about 70 percent of the gauge by weight. Eighteen members of the index advanced this year, led by gains of 23 percent or more in wheat and soybeans as U.S. farmers endured the worst drought in a half century. Gold is headed for a 12th consecutive annual increase, driven by central bank stimulus, and corn and cattle reached records.

Increasing Consumption

Accelerating economic growth in the second half of 2013 will spur more demand, said Jeffrey Currie, Goldman’s New York-based head of commodity research, predicting a 7 percent return in commodities over 12 months. Increasing consumption will curb available supply, boosting near-term prices relative to longer-dated contracts, he wrote in the report.

Demand for energy and grains will be “resilient” and delayed harvests in South America will limit corn and soybean supplies, Hussein Allidina and Peter Richardson, analysts at Morgan Stanley in New York and Melbourne, wrote in a Dec. 6 report. Economies will accelerate in the second half of next year should central banks extend stimulus measures, they said. Policy makers from Japan to China to Europe to the U.S. have pledged to do more if growth weakens.

Citigroup says prices that have risen in nine of the past 10 years are spurring more investment in production, creating supply gluts, according to a Nov. 19 report by Edward L. Morse, the bank’s New York-based global head of commodities research. Output will exceed demand next year in 10 of the 15 commodities covered in the Bloomberg survey, according to supply and demand estimates from either Barclays Plc or Rabobank International.

Central Bank

The European Central Bank said Dec. 6 it expects the 17- nation euro-area’s economy to shrink 0.3 percent next year, having previously forecast growth. Europe accounts for about 18 percent of copper demand and 14 percent of global energy consumption, Barclays and BP Plc data show.

Hedge funds pared bullish wagers in the fourth quarter, with net-long positions dropping 35 percent since the end of September, U.S. Commodity Futures Trading Commission data show. While the Bloomberg survey shows that everything from cotton to soybeans will gain at least 9.9 percent in 2013, the analysts have been wrong before. In last year’s survey, only three of the 15 commodities covered reached their projected highs in 2012.

“Commodities tend to be victims of their own success,” said Jack Ablin, who helps oversee about $66 billion of assets as chief investment officer of BMO Private Bank in Chicago. “If you think about industrial metals, we have now dug a little deeper, and we’ve mined a little more, and now we have unprecedented inventories.”

World Growth

Commodity assets under management rose 8.6 percent to $429 billion in the first 10 months of 2012, according to London-based Barclays. Contracts outstanding across the members of the S&P GSCI advanced 12 percent this year, data compiled by Bloomberg show. Holdings in gold-backed exchange-traded products jumped 12 percent and were last valued at $143.6 billion.

World growth will accelerate to 3.6 percent in 2013, from 3.3 percent this year, according to the International Monetary Fund. China’s economy, the biggest consumer of everything from coal to cotton to copper, will accelerate in the fourth quarter, after slowing for seven consecutive quarters, the median of 30 economist estimates compiled by Bloomberg show.

More central-bank stimulus means investors will continue to buy gold to protect against inflation and currency debasement, and prices will average a record $1,853 an ounce in 2013, Morgan Stanley predicts. Gold for immediate delivery slid 0.3 percent to $1,692.32 at 10:21 a.m. New York time. Goldman says the prices will probably peak next year because of improving U.S. growth.

Tax Increases

Demand for gold may also be boosted by mounting concern that U.S. growth will slow. The Federal Reserve “doesn’t have the tools” to counter the risks should lawmakers fail to reach an agreement on about $600 billion in tax increases and spending cuts that start automatically next month, Chairman Ben S. Bernanke said Dec. 12. Bullion will rise as much as 18 percent to $2,000 in 2013, the median of 49 estimates in the Bloomberg survey shows.

Soybeans and corn reached records this year and wheat touched an almost four-year high as drought parched fields in the U.S., the biggest agricultural exporter. Wheat will beat corn and soybeans in 2013, advancing as much as 18 percent, according to the median of 32 predictions. Citigroup expects grain and soybean prices to be supported in the first half of next year as supplies remain tight.

Arabica coffee is expected to have the biggest gain among the 15 commodities in the survey, climbing as much as 33 percent after slumping 36 percent in 2012. Nickel may be the best- performing industrial metal, rising as much as 16 percent, while copper will gain 12 percent, the survey showed.

Profit Measure

The gains may boost earnings for suppliers. BHP Billiton Ltd., the largest mining company, will report a 6.7 percent gain in its most-closely tracked profit measure to $7.66 billion in its fiscal second half ending June 30, the mean of five estimates shows. Shares of the Melbourne-based producer rose 6.5 percent this year, and may climb 4.4 percent to A$38.28 in 12 months, according to the average of 20 forecasts.

“It won’t be a straight line higher, but there’s a pretty good undertow for commodities,” said James Paulsen, the Minneapolis-based chief investment strategist at Wells Capital Management, which oversees about $325 billion of assets. “Commodities in general will trend higher the next few years, but there’s room for selectivity.”

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