Why should we invest in commodities?

Why should we invest in commodities

While stocks and currencies often dominate the minds of investors, the modern marketplace is now home to a diverse array of assets and financial instruments.

Take commodities, for example, which include precious metals such as gold and silver and provide a sharp contrast with derivative assets like currency.

In this post, we’ll look at the most prominent and popular commodities in the world’s financial markets, while appraising the primary benefits of this asset class.

What Types of Commodity can You Invest in?

In simple terms, commodities are basic items and materials that can be transformed into other goods and services, while they can also cover a range of applications from agriculture and energy to precious metals.

Gold is perhaps the single most widely traded commodity, with this unique and finite asset known to provide a secure store of wealth during times of economic tumult.

This is borne out by the fact that the price of gold ultimately broke the iconic $2,000 barrier in the midst of the coronavirus pandemic in August, with investors utilising this asset to diversify their existing portfolios.

Why should we invest in commodities?

Silver is another widely traded (and similar) commodity, albeit one that also boasts huge industrial applications in the modern economy. Used commonly to manufacture items such as batteries and semiconductors, silver benefits from more consistent levels of demand and will usually experience hikes during periods of economic recovery.

Interestingly, oil is one of the most volatile commodities, while the price of this asset also correlates strongly with currency values (particularly the US Dollar).

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The value of oil has experienced numerous peaks and troughs over the course of the last decade, while supply has continued to outstrip demand to create downward pressure on prices.

However, this asset is poised to experience an increase in value during quarter one 2021, after plummeting in March of this year following a collapse in global demand following the coronavirus outbreak.

What are the Benefits of Currency Trading?

We’ve already touched on how the demand for commodities such as gold increases during times of economic contraction, but there’s more to this than the asset’s innate ability to provide a secure store of wealth.

In fact, the value of good and similar commodities tend to increase in value amid the type of quantitative easing measures and inflation hikes that we’ve seen during the last 12 months, particularly as government’s look to print money as a way of stimulating economic growth.

Conversely, this type of monetary policy actively devalues fiat currencies, causing investors to seek out alternative assets over time.

Given the viability of commodities as an effective hedge against inflation, such assets can also diversify equity risk considerably, while they’re also easily accessible through trading platforms such as the MetaTrader 4.

Even on a fundamental level, commodities have a tendency to increase in demand while decreasing in their supply (thanks to their finite nature), which hints at upward price movements in the future.

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