The returns on commodities have made for truly eye-watering reading in recent years. If you had invested £1,000 in late 2001 in JPM Natural Resources Fund-which invests in a spread of metals, including steel, gold and copper, plus energy companies-you would now be sitting on a return of £5,209, way ahead of the FTSE-100's own gains during the same period.
Justin Modray of broker Bestinvest says the million dollar question for investors now is whether the commodities sector is a bubble waiting to pop, or whether the sector is just at the start of a huge "super-cycle" that could pile on more gains thanks to ongoing demand from China.

"Despite recent price rises, commodity prices, in real terms, are close to their lowest levels in 200 years," says Modray. "Real prices have fallen by a third over the last 20 years and have almost halved since World War I. This lends weight to the argument that we're experiencing an early phase of a super-cycle-and that commodity prices will continue to rise." One-nil to the commodity bulls.

But Alan Steel, from Edinburgh-based Alan Steel Asset Management, disagrees. He believes that new investors have simply missed the boat, and by some margin. "My gut reaction is the commodities boom is finished," he says simply. One way of measuring that, he adds, is to look at the amount of money held in US mutual funds with commodity holdings, and compare that to other sectors. "Commodities in US funds are now way, way over-weight," says Steel. "They're in bubble territory. And even the fall back in recent weeks hardly dented that. As for the argument we're in some sort of a super-cycle, well, why was no-one talking about a super-cycle before this boom?"

Steel's comments will reverberate deeply with anyone who got caught in the US tech boom of 2001. Even when the tech-dominated Nasdaq Index was falling in huge slugs, Steel remembers many investors continuing to pile in, convinced it was a smart buying opportunity.

Ian Henderson, fund manager of JPM Natural Resources Fund, remains, as you might expect, a metals bull. He points out that copper trades at more than double the price it was a year ago, while zinc prices remain more than 200 per cent higher compared to this time last year.

But such gains haven't stopped Justin Urqhuart Stewart at Seven Investment Management from cutting and running. "We've taken our commodities exposure to zero," he says. "The reason is that we're anticipating a global slowdown. Interest rates have risen in the US, the UK, Japan, even China. Mining companies have also become more efficient, with plenty of market consolidation. The best time to go back into commodities will be the later part of this year when we see possible interest rate cuts."

If you don't want to wait that long, another class of commodities yet to catch mainstream attention might be worth a punt. Soft commodities, such as sugar, coffee, soybeans-even orange juice-are agricultural products tipped, say some, to rise in value. The argument goes like this: changing lifestyles in China and India are seeing a growing middle-class adopt western-style diets. Throw in global warming-and the potential for more natural disasters to come, wiping out crops and therefore tightening supply-and you can see why some claim the sector has "buy" written all over it.

Jeremy Goldwyn oversees both hard and soft commodities as head of industrial commodities at futures and options broker Sucden, but he cautions against jumping into soft commodities too quickly; much of the sector remains a bet on the weather, he says. "If I had to choose one commodity it would probably be sugar, simply because it's one of the more liquid markets. The poorer nations tend to be big consumers, as do richer nations who refine it into a lot of their foods."

Alternative investment strategist Uwe Ketelsen from Barclays Wealth is even more guarded on "softs". "You're seeing a big change in Asian lifestyles and there will be more coffee drunk and meat eaten," he says. "But what people forget is that the agricultural supply side is quicker to react than hard natural resources which are drilled or dug out of the ground. For example, if BP loses an oil platform it takes 10 years to build another one. But if a farmer in Brazil sees his coffee crop wiped out by a storm, another farmer somewhere else in the world will be able to fill that gap, quickly. The reaction time is tiny compared to hard commodities like mining."

Ketelsen also warns continued de-regulation in agricultural markets looks likely, with subsidies gradually being removed, in turn creating more competition and driving down prices.

So, however you dig, drill, or grow it, the risk of commodity investment is higher than it was. Risk-averse investors are advised to steer clear-at least for now.