Few investments have raced ahead as fast as commodities in the bull market of the past few years. Everything from palm oil to platinum has jumped in value, fuelled by demand from the new economic powerhouses of China and India. This has been recognised in some massive corporate deals, culminating in the $44 billion (£22 billion) bid by Rio Tinto, the Anglo-Australian mining group, for Alcan, the Canadian aluminium group, in July.

The question now is whether the boom will continue. Rodolphe Roche, who helps to manage the recently launched Schroder Agriculture Fund, is optimistic about prices for crops such as wheat, soya beans and cocoa, despite their recent rise. “The main reason behind this is tight levels of stocks,” he says. “World production is rising, but not at the same pace as consumption. For the main agricultural commodities, stocks are at historically low levels.”

Farmers were already struggling to meet demand from India, China and Western countries, he says, when along came a new demand in the shape of enthusiasm for biofuels, which are perceived by some, notably President Bush, as a solution to the world energy crisis. This could result in large quantities of corn and sugar being made into ethanol, while rape-seed, palm and soya bean oil are turned into biodiesel. Patrick Armstrong, a fund manager at Insight, adds that to meet demand, farmers will cultivate less fertile soil, which means higher spending on irrigation and fertilisers, thus pushing up prices.

Meanwhile, oil has hit 11-month highs at about $80 a barrel. Harry Tchilinguirian, an oil analyst at BNP Paribas, the French bank, remains optimistic about the longer term, saying: “The big producers grouped under Opec [the Organisation of Petroleum Exporting Countries] have managed to cut production this year. People are saying that growth in demand will outpace nonOpec supply. Coming on top of Opec reducing supply, that’s a bullish environment.”

This is not a view shared by Steven Spencer, chief executive of Traderight, a specialist commodities fund manager. He believes that the market is at a turning point now. “My feeling is moving from bullish to bearish,” he says. “We are neutral to bearish on metals, slightly bullish on oil and mildly bearish on grains. A lot of banks and brokers have pushed the commodities story for the past three years and are getting desperate. Physical demand for metals and energy has been falling. It is what always happens in commodities: production has risen dramatically across the board.”

Even if he is right, sophisticated – and wealthy – investors may still profit. If you think that prices will fall, you can use the huge commodities futures markets to go short, or sell assets that you do not own in the hope of buying them back more cheaply later. Because you are trading only a contract to deliver something in the future, you need not fear the arrival of thousands of tonnes of copper at your front door. Indeed, Sucden, a commodities broker, trades futures in anything from coffee to silver for private clients at $6 a trade.

But this is not for the fainthearted. The minimum contract for crude oil is 1,000 barrels, valued at $78,000. Of that sum, you may be required to put up a margin of, say, 5 per cent, or $3,900, but a 1 per cent move in the underlying price will be magnified 20 times in your margin.

Smaller investors can also trade commodities using spread-betting techniques, or contracts for difference. But Malcolm Freeman, managing director of Ambrian Commodities, the specialist broker and dealer, says that while futures can be “quite fun”, they are too volatile to be suitable as a large part of your portfolio. He says: “If you have £250,000 to £1 million, it is better to put it with a good fund manager.”

One such is the Labrador Fund, run by Traderight, which produced a 12.3 per cent return last year. Although this is less than the fund’s 15 per cent target, the aim is also to protect investors’ money. With its freedom to go short, a fund such as Labrador can provide just that sort of insurance. But even for someone with the $250,000 necessary to become an investor in the fund, commodities should represent only a small proportion of your wealth.

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