Will Commodities Beat Stocks in 2011?

NEW YORK ( TheStreet) -- Commodities outpaced stocks, bonds and the dollar, and fueled a 24% gain for Dow Jones-UBS Commodity Index last year. In more ways than one, 2010 proved to be the year of commodities, but what of 2011?.

As developed economies stall last year, commodities became a way for investors to play the massive growth story of emerging markets such as China and India. Surging demand from those two countries sent prices of industrial metals like copper and agri-commodities like corn soaring.

The Federal Reserve's second round of quantitative easing also led investors to bet against the dollar and buy commodities in a hedge against inflation.

With the outlook for developed markets improving in 2011, commodity bulls are betting that prices of commodities like copper and crude oil will continue to rise, especially amid a tightening supply situation. Gold bulls are betting that growth will be accompanied by inflation, which means the yellow metal could still head higher.

>>Commodities That Could Heat Up in 2011

Commodities could also benefit from increasing allocations to the asset class, as more investors start to view it as a core component in their portfolios. The explosion of exchange traded funds has made commodity investing easier. A case in point is the SPDR Gold Trust ( GLD), which now has $58 billion in assets under management and has become a key holding for hedge fund titans like John Paulson and George Soros.

Yet, if the economy is headed for a speedier recovery, stocks could do well too. Stocks climbed in the last quarter as the extension of the Bush tax cuts brightened the outlook for 2011.

The beginning of the year saw a host of upgrades on a range of blue-chip stocks including Alcoa ( AA), Apple ( AAPL) and Boeing ( BA), reflecting bullish sentiment from the analyst community.

While companies posted strong results in 2010, investors were reluctant to pay more for stocks in the absence of top line growth. If the economy grows at a faster rate, companies might finally be able to grow sales at a meaningful rate and valuations could climb.

If the global economy is recovering at a faster pace, should you be buying stocks or commodities? Take our poll to see what readers of TheStreet think.

Will Commodities Beat Stocks in 2011?

Yes
No

-- Written by Shanthi Bharatwaj in New York

>To contact the writer of this article, click here: Shanthi Bharatwaj.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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