2014.07.0104:13:30UTC+00Mixed commodities spur return of interest of investors

With a mix of raw materials faring better than expected on economic and weather development, investors are re-entering commodity markets.

Raw materials ranging from gold to coffee have helped the sector become the top asset class performer for the year so far. Commodities have recorded their best six months in six years with Bloomberg’s Commodity Index, which tracks 22 raw materials, beating out the equities-measuring MSCI All Country World Index with a 7.1% gain compared to a 4.9% one

As a result, there has been renewed interest in allocating investments for commodity funds. Data from Citigroup Inc says that $5.9 billion of new money has entered raw materials in 2014 with assets under management increasing to $365 billion in May from the $360 billion last year with further gains still expected for June.

Major contributors included the 11% rise of gold behind global tensions and extended periods of low interest rates, the 58% climb of coffee due to unfavorable dry weather conditions in Brazil, and nickel which was up 37%.

Commodities were discarded by investors in 2013 when they retreated along with $27 billion from precious metals. During that time, corn caused both assets of exchange traded products and index funds to sharply drop by 22% while gold saw its period of twelve rising years come to an abrupt stop.

This year, the World Meteorological Organization of the United Nations says there is a 60% of the weather phenomenon El Niño forming around August in the Pacific region. This could mean strained conditions and higher prices for harvests in Asia, Africa, and South America of cocoa, palm oil, sugar, and coffee. Many hedge funds under the US Commodity Futures Trading Commission have since last week taken long positions on 17 commodities including crude oil and coffee.