Commodities: The Comeback Kid of 2010?

NEW YORK (TheStreet) -- It may seem like a distant past, but it was only three years ago that commodities blew away just about every asset class in annual performance.

Then those heady commodity returns of 2007 gave way to the commodity bubble of 2008, and the broad equity markets have outshined commodities ever since.

Again, in 2009, the S&P 500 Index indeed outperformed commodities. Still, over the second half of the year, commodities recovered nicely. And while the widely watched Standard & Poor's S&P GSCI commodity markets index was up 13.5% last year, falling well short of the S&P 500 Index return of 23%, that marked a huge improvement over the 2008 freefall of 45% in the commodity markets. The GSCI was up close to 8% in the last quarter of 2009, in particular.

So has this positive trend poised commodities to return to their 2007 highs and outperformance over equities, or does it pose the worrisome thought that commodities are headed for another bubble?

To put the question in the simplest terms: Which is the better 2010 bet, theSPDR S&P 500(SPY) or the iShares S&P GSCI Commodity-Index Trust(GSG) ?

Goldman Sachs(GS), for one, is predicting that the S&P GSCI index will rise 17.5% in 2010, besting an S&P 500 call of 11% growth in 2010. Goldman predicts that the GSCI sub-sectors of energy (25%) and metals (15%) will lead returns for the commodities index this year. This prediction would make 2010 a good year for the SPDR Energy Select Sector(XLE).

Oil prices have already been on the way up and rose above $80 on the first trading day of the year on Monday.