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When and how to invest in the commodity market – Taking a balanced step forward

Commodities / Commodities Trading Sep 04, 2017 - 10:55 AM GMT

By: Boris_Dzhingarov

Commodities Commodity prices usually soar higher during inflationary periods. There are times when the economy goes through soaring levels of inflation, just like it happened in 1970s. During that period, interest rates surged up to 18% to fight against the levels of inflation and the prices of commodities reached their record high levels. However, it is not that all periods of inflation have to be so extreme but at the same time it is true that commodities usually perform well when there is mild inflation in the country.

Investing in commodities – A major trend

Investing in commodities as a form of long term investment has become extremely famous lately. In fact, the introduction of commodity ETFs has facilitated this process and has made it simpler. Some other investments as managed futures are also there and they can surprisingly make money irrespective of the direction to which the commodity prices move. Are you an investor who is investing in commodities utilizing a certain percentage of your investment portfolio? If yes, you should know that timing is not something too important as it usually is for trading commodities. 

When do investors flock towards commodities?

Two of the most common times when majority of the investors take resort to commodities are when they become exceptionally cheap and when they’re deemed a value play. Yet another time is when such commodities hit their multi-year highs and when the investors catch on to this trend. Ideally, in the field of investment, it is noticed that majority of the assets lure most dollars post experiencing a period of very high returns. There are times when this is considered as a lucrative philosophy but still investors buy at the top of the market.

In its essence, commodities are hedge against inflation and throughout a long period of time, commodities work in accordance with the pace and even surpass the inflation rate. Hence, a typical buy and hold technique will make sense for the investor irrespective of when he buys the commodities. While trading commodities, there are many strategies that you can use in order to seek benefit of the price trends.

Another common strategy to use is scale trading when the commodity’s price reaches its lowest level. If the price of a commodity falls below the production cost, the price will fall lower and a major bottom is pretty near. The commodity traders usually don’t require commodity prices to move up to make money. They can even trade with futures contracts and allow them to move in and out of markets and make money from commodities which move lower.

Just like an investor would purchase stocks to build his investment portfolio for seeking long term returns, he can do the same with commodities. As per recent financial analysis, irrespective of whether commodities are at their lows and highs, an investor may enter the market any time. If you see that the commodities are not performing as per expectations for a long period of time, it is most likely that the investments within a diversified portfolio are performing better.

By Boris Dzhingarov

© 2017 Copyright Boris Dzhingarov - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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