As most commentators will be aware, after a disastrous 2008 for commodities, and even more so for many commodities stocks, prediction is a hazardous business.  While many were only too well aware at the beginning of 2008 of the vulnerabilities in the global economy, few stuck their necks out to forewarn of the scale, or the speed, of the subsequent meltdown in virtually all stocks, among which commodities were one of the worst affected sectors.

Now there seems to be the opinion amongst many commentators that many of those investors who ventured into commodities and commodities stocks at or around their peaks, and got their fingers severely burnt, will likely give the sector a wide berth this year, as will funds who may have ventured into the sector in the past.  This could severely restrict the potential of good profits being made even should the sector economics improve over the next few months.

This may be a very shortsighted view though.  If specific commodities or stocks are seen as having strong potential then investors will invest and prices will rise.  Maybe there is less money around to speculate though so the kind of huge increases seen in the pre-crash commodities sector will likely not materailse again in the immediate future.

For those prepared to take the plunge back into the sector there are going to be some areas which hold out the prospect of better upside than others, and with a very limited downside potential, which should appeal to the more cautious investor.

So where do you look for this kind of potential.  In truth things fell back so far in the latter half of last year, and so rapidly, that one has to consider that the downside in virtually any commodity is somewhat limited for the near to medium term, but some stand out as offering perhaps better prospects than most.

In the forefront is, probably, oil where the huge price crash from $147 a barrel down to, at one stage, $32 a barrel almost certainly was way overdone.  With the major oil producers having the ability to manipulate the price through production controls, and the avowed purpose so to do which is already beginning to have an effect.  The impact of cuts – or production increases – takes time to sink through and affect the markets and pricing and we are only just beginning to see the glimmers of an oil price recovery now.  It would not be unreasonable to look for a doubling of the oil price within the next few months.

Indeed a doubling of the price puts us pretty much in line with Barclays Capital which is forecasting $76 a barrel for average U.S. crude in 2009.  Barclays is perhaps one of the more bullish on oil, though, among the major banks' analytical teams.

Gold is another likely beneficiary from continuing financial and political turmoil, but don't necessarily expect a sharp rise.  Indeed gold was one of the few sectors which showed a profit overall in 2008, but gold stocks may still have a little catching up to do so there is potential here.  Overall one would look to gold perhaps to regain the $1,000 an ounce level during the year – and it could well then stay there which could again substantially outperform any general stock market recovery, if indeed there is one.

Silver will likely rise on the back of gold, even though fundamentals may not be as strong depending on who's figures one takes.  Its volatility in relation to gold means that there could be the prospect of a better performance than gold in percentage terms, but that's not really something to bank on.

What of the rest?  Of the external commentators who deal with the commodities sector, Peter Grandich, who publishes online opinion ( is one of the more circumspect commentators with a pretty good track record over the past year (apart from on junior mining companies which he never expected to be decimated in the way they have been).  He also feels that oil and gold are the most promising commodities in the current environment and on some of the others he makes the following comments, with which we would mostly concur:

“Platinum appears to have seen its lows and while the upside may be limited in 2009, so appears the downside.

Base metals - I’ve been bearish on them for about two years. As we begin 2009, there isn’t anything to change that view other than further declines which could bring us to the point where accumulating them for 2010 and beyond could be worthy.

I do think uranium has bottomed and can work its way back to triple digits in the next 24-36 months.”

Perhaps base metals may do better than Grandich suggests, but the sector certainly remains weak but to an extent the huge falls in stock prices, which in many cases exceeded those in the commodities themselves, could leave scope for investment gains this year.