Recent headlines have been dominated by rising gas and oil prices, with certain commodity
prices setting all-time highs in the past year. This has attracted investors to the commodity sector
as a result. In 2022, commodities funds received a net inflow of more than $24 billion, according
to Refinitiv.
Individual commodity prices can change depending on several variables, including supply and
demand, inflation, and the state of the general economy. Large-scale international infrastructure
projects have raised demand in recent years, which has in turn affected commodities prices.
Due to the favorable effect on corporate stocks, joined industries have seen an increase in
commodity prices.
Commodities investments can be used to diversify your portfolio by including a variety of
different assets. When stock markets are turbulent, commodities may also offer better returns
than investments based on shares.
Similar to how stocks and shares are traded, commodities are purchased and sold in large
quantities on exchanges.
Although trading in physical commodities is a possibility, trading in futures contracts is much
more popular. A futures contract, in its most basic form, enables buyers and sellers to agree on a
price and other terms for the delivery of a commodity at a predetermined future date.
Here are some opinions for inviting the commodity market.
1. Potential Protection against Inflation
Commodity prices can rise as a result of inflation, which has the power to change bond and
stock prices. Although at times of severe inflation, commodities have performed well. Compared
to other investment types, commodities are significantly more volatile.
2. Diversified Investment Portfolio
Commodity market investing gives you the chance to have a diverse portfolio. indicating that
your plan for allocating assets is ideal. To have a varied financial portfolio, commodities are
essential. If you already invest in stocks and bonds, it is advised to do so along with raw material
investments.
3. Openness to the Process
Commodity futures trading is supposed to be a transparent procedure. Your actions will enable
you to receive a reasonable price, which is then governed by widespread involvement. In turn, it
represents the various viewpoints and outlooks of a larger group of individuals who engage with
the product.
4. Effective Returns
When there is a lot of liquidity, investments in commodities are riskier. Either a significant profit
or significant loss is likely for businesses. Consequently, if you invest wisely, you can reap
significant rewards from the commodity market.
5. Protecting against market turbulence
If the value of the "naira"
drops, you will need more cash to purchase commodities from different regions of the world.
Price increases for commodities are mostly caused by investors selling their equities and bonds
to invest in commodities during periods of inflation. So, the only commodities that will be
profitable for you are those that will serve as a hedge against market risks.
6. The best option for pricing security and certainty
Prices of commodities typically increase during periods of inflation when the economy is weak;
hence, prices of raw materials are also expected to increase. As a result, a select few
commodities will be profitable for you.
