Investing in commodities has become nightmarishly difficult (2024)

FAQs

Why is investing in commodities so risky? ›

Uncontrollable factors such as inflation, weather, political unrest, foreign events, new technologies and even rumors can have devastating consequences to the price of a commodity. Investors investing in commodities must be able to bear a total loss of their investment.

Commodities are considered risky investments because the supply and demand of these products are affected by events that are difficult to predict, such as weather, epidemics, and natural and human-made disasters.

Key Takeaways. Investing in commodities can provide investors with diversification, a hedge against inflation, and excess positive returns. Investors may experience volatility when their investments track a single commodity or one sector of the economy. Supply, demand, and geopolitics all affect commodity prices.

Given that inflation remains stubbornly high in today's environment, “markets today offer a good opportunity to add some commodity exposure,” says Eric Freedman, chief investment officer, U.S. Bank Wealth Management.

Commodity-dependent countries often grapple with issues like slow productivity, income volatility, overvalued exchange rates, and increased economic and political instability.

Commodity money has intrinsic value but risks large price fluctuations based on changing commodity prices. If silver coins are used, for instance, a large discovery of silver may cause the value of the silver currency to plunge, resulting in inflation.

Benefits of commodities

This means that when other investments decline, commodities may provide a cushion against losses. Secondly, commodities have the potential to act as a hedge against inflation. As prices rise, the value of commodities often increases, providing a valuable store of wealth.

The downsides to commodity investing are a lack of income, high volatility, and external risks. Lack of income: Investing in commodities doesn't generate yield income like a bond or a dividend-paying stock.

The most challenging aspect of trading is gaining the qualitative skills. Those that come from experience or time spent in the markets. Being realistic and realising that you are probably just an average trader and that's okay. It's about learning how to keep going even when your account experiences a few losses.

Commodities don't do well in recessions

By contrast, gold has tended to shine during recessions as investors have reached for their safe-haven status. At the same time, the loosening of monetary policy and lower real interest rates has typically supported gold prices during economic downturns.

What are the top 3 commodities to invest in? ›

You can invest in commodities in a range of ways. Today, the top three in the list of commodities are crude oil, gold and base metals. It is worth taking a look at all three and finding out how to invest.

Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services.

Our time is our most valuable and precious commodity and cannot be replaced. Quoting the great philosopher, Seneca: “We're tight-fisted with property and money, yet think too little of wasting time, the one thing about which we should be the toughest misers.”

We believe a longer-term commodities bull market could resume in 2024 as they act as a hedge against global conflict and inflation.

Because commodities are raw materials — e.g. grain, oil, precious metals — the price of commodities fluctuates constantly owing to changes in supply and demand, which are in turn influenced by climate and weather patterns, workforce issues, global economic trends, and more.

Commodity risks occur due to both upward and downward movement in the market. For instance, a farmer might get less returns on their crop yield when the prices decline in the market.