Commodities may rebound from their first retreat in three yearsas developing economies shore up global growth, driving demandhigher at a time when raw-material producers are already strugglingto keep up.

Precious metals will advance 27 percent or more, industrialmetals at least 17 percent and grains 5 percent, according to themedian estimates in a Bloomberg survey of 143 analysts, traders andinvestors. Nine of the 15 commodities covered by a similar survey ayear earlier reached their predicted highs in 2011, with anotherfive no more than 4 percent away.

The Standard & Poor's GSCI Total Return Index of 24 rawmaterials rose 16 percent through April, before tumbling 15 percenton mounting concern that Europe's debt crisis and slower Chinesegrowth would curb demand for commodities. A 6.1 percent expansionin developing economies this year will help sustain global growthat 4 percent, above the average over the past decade, theInternational Monetary Fund predicts.

“The biggest thing driving commodities is the emerging world,”said James Paulsen, 53, the Minneapolis-based chief investmentstrategist at Wells Capital Management, which oversees about $330billion of assets. “The emerging world slowdown bottoms out in thefirst half of the year and by the second half it's acceleratingagain. You've also got the U.S. economy not just avoidingrecession, but growing again.”

The S&P GSCI gauge fell 1.2 percent last year, the firstdecline since a 46 percent slump in 2008, with cotton, natural gas,cocoa and sugar leading the retreat. That still beat the 9.4percent drop in the MSCI All-Country World Index as $6.1 trillionwas wiped off the value of global equities. The Dollar Index, ameasure against six major trading partners, advanced 1.5 percentand Treasuries returned 9.8 percent, a Bank of America Corp. indexshows.

While only gold is predicted to reach a record in 2012, risingas much as 33 percent to $2,140 an ounce, respondents in the surveyanticipated that every one of the 15 commodities covered wouldgain. Gold for immediate delivery traded at $1,602 an ounce at 2:37p.m. in London.

Silver, the precious metal most used in industry, will advanceas much as 44 percent to $42.20 an ounce, a price last reached inSeptember, the median of 41 estimates shows. Zinc may be thebest-performing industrial metal, rising as much as 28 percent to$2,400 a metric ton, a level last touched in August, based on themedian of 21 expectations.

Arabica coffee, the variety favored by Starbucks Corp., may beamong the best performers in so-called soft commodities, gaining asmuch as 21 percent to $2.725 a pound, the median of 26 forecastsshows. Corn will outperform wheat and soybeans, advancing as muchas 6.4 percent to $7 a bushel, according to the median of 36predictions. Both prices were last reached in September.

“The highest quality in every asset class wins,” said CharlesMorris, who oversees about $2.2 billion at HSBC Global AssetManagement in London. “The highest-quality commodity is gold.High-quality currencies, high-quality equities, high-quality bonds,high-quality commodities have been the best place to be in 2011,and I expect that to be repeated.”

Commodities tumbled since April as Europe's debt crisis widened.Yields on two-year Greek debt surged to 152 percent last month,compared with 0.29 percent for Treasuries of a similar maturity,and the euro weakened 12 percent against the dollar since the startof May. The region accounts for 19 percent of global copper demandand consumes about one in six barrels of the world's oil.

Global Growth

Fewer youths keeping factories going and more pensioners tosupport in developing markets such as China and Brazil means theworld economy is set to slow, says Goldman Sachs Group Inc. As theso-called BRIC nations slow, global growth probably will peak atabout 4.3 percent this decade, according to a Dec. 7 report by thebank's analysts. Russia and India make up the other BRICnations.

Hedge funds and other money managers reduced their net-longposition, or wagers on higher prices, across 18 commodities by 65percent since April and in the week ended Dec. 20 were the leastbullish since March 2009, Commodity Futures Trading Commission datashow. They anticipate declines in copper, cocoa, soybean oil andmeal, wheat and natural gas.

Investors took $10 billion out of commodities in September, thelargest monthly amount ever, because of concerns about Europeangrowth, according to Barclays Capital. Commodity assets undermanagement rose 12 percent to $426 billion in the first 11 monthsof 2011, on track for the worst year since an 18 percentcontraction in 2008.

“The commodities market right now is driven by sentiment, and Ithink it's fear,” said John Stephenson, who helps manage $2.7billion of assets at First Asset Investment Management Inc. inToronto. “We are starting into a bear market, because the problemsin Europe aren't easily solved. People are liquidating withoutregard to fundamentals or the attractiveness of a commodity goingforward.”

Among metals, there will be shortages in copper, tin andpalladium this year and narrowing surpluses in aluminum, zinc,silver and platinum, Barclays predicts. In agriculturalcommodities, Rabobank International anticipates shortfalls in corn,soybeans, coffee and cocoa.

Oil supply will probably lag behind demand for at least a thirdconsecutive year in 2012, Barclays estimates. Inventories in theU.S., the biggest consumer, fell 12 percent since May, Departmentof Energy data show. Crude traded in New York will average a record$100 a barrel this year, according to the median of 27 analystestimates.

Weaker Dollar

Commodities may also appreciate in 2012 on prospects for aweakening dollar. The Dollar Index will average 76.1 in the fourthquarter, compared with 79.8 yesterday, the median of nine economistestimates shows. Commodities moved in the opposite direction to thecurrency in 13 of the past 20 quarters, according to data compiledby Bloomberg.

Growth in China, the biggest user of everything from copper tocotton to coal, will slow to 8.5 percent this year, from 9.2percent in 2011, the mean of 14 estimates shows. That's still fourtimes the anticipated pace of the U.S. and five times the projectedspeed of Japan. China accounts for 38 percent of copper consumptionand 11 percent of oil demand, according to Barclays and theInternational Energy Agency.

“China may slow, but it's still seeing crazy growth, and Europeand the U.S. aren't in recession yet,” said Christoph Eibl,co-founder of Zug, Switzerland-based Tiberius Asset Management AG,which manages about $2.5 billion of assets. “Funds are sitting on alot of cash and eventually they'll have to buy risk assets again,which will include commodities.”

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