Goldman index takes a hit

Anyone who followed the advice of Goldman Sachs Group Inc last year and invested $10 million in the Goldman Sachs Commodity Index would have lost 15 per cent or $1.5 million.

Like many of Wall Street's best and brightest, Goldman, the biggest securities firm by market value, says it wasn't wrong, just early to expect an 8.1 per cent return in 2007.

"The long-term secular story is very much intact," Jeff

Currie, global head, commodities research at New York-based Goldman, told customers in London earlier this month. That's the same outlook provided 13 months ago by Arun Assumall, the firm's London-based head of commodities sales.

Like Goldman, Deutsche Bank AG isn't discouraging anyone from doubling down in what increasingly looks like a bear market. Germany's largest bank in September said oil will trade between $60 and $70 a barrel this year, well above the $49.90 fetched last week. Barclays Capital, the securities unit of the UK's no 3 bank, said four months ago crude did not drop below $60.

As losses mount in copper, oil and sugar, these firms say the 20 per cent plunge in commodities, as measured by the Reuters/Jefferies CRB Index since May, offers a chance to buy before demand from China and India causes a rebound.

History shows otherwise. The CRB index dropped at least 20 per cent six times since 1970 and on average fell a further 7.7 per cent before bottoming.

"Over the course of this year, many investors who went into commodities will question why they did so and whether they strategically want to be in it for the long term," said Simon Hayley, a senior economist at London-based Capital Economics Ltd, who said in May that prices would slump. "Raw materials still have further to fall," he said. Stocks and bonds in 2006 offered better returns than commodities for the first time in three years.