SolidusX Blog

Reasons to Invest in Commodities

With the many changes in the financial climate that we’re witnessing, one constant that has retained its appeal, if not increased, is commodities. It feels like almost every other day there’s a new report about the hottest companies you have to invest in NOW! More so, just how many so-called “experts” with the exact same overdone LinkedIn picture pitching their new cryptocurrency as “the future of tech” can we take?

Truth is, in a world that’s relying more on technology and AI, commodities are proving once again to be as lucrative as they are reasonable. Let’s find out why so many people have chosen to trade commodities.

What are commodities ?

Commodities are goods that are tangible, such as gold, oil, and coal. These commodities can be bought and sold just like you would buy stocks or currencies. Unlike stocks and bonds, commodities are crucial to our day to day lives. Blue-chip company stocks don’t put clothes on our back, but the wool used to make them does. The metal used to build your work office, that’s a commodity. The wheat used to make the bread that feeds your family, that’s also a commodity.

Why invest in commodities?

1. Supply, supply, supply.

Let’s get somewhat cynical. If there’s anything we’ve been really good at as a society, is going through the earth’s natural resources at an alarming rate. We’ll spare ourselves the ethical lecture, but it does remind us of one unchangeable fact. The earth only has a finite amount of everything. The past few years have seen demand shoot up while nations scramble to provide enough resources. Saudi Arabia and the United Arab Emirates, two oil titans are already being asked to up their oil production by a million or two barrels a day, while nations like Nigeria and Libya simply can’t keep up. Commodities are becoming a lot more valuable as their supply dwindles down.

2. Be covered in times of inflation

A turbulent geo-political climate has seen inflation skyrocket in all corners of the world. There are many different factors that can cause inflation, but the result remains the same. The people’s purchasing power diminishes as products become more expensive. Traditionally, one commodity has always been seen as a “safe bet” against inflation, gold. There are fewer commodities safer than gold, thanks in part to its constant demand. Gold is also found in popular everyday items such as jewelry and watches. Irrespective of individual currency fluctuations, buying gold is a reflex when inflation is present and also a powerful hedge against it.

3. Portfolio diversification

A diverse portfolio is an important step to take in making sure your investments are somewhat safer. We’ve all heard the famous saying “don’t put your eggs in one basket”, this is the financial market equivalent. At the risk of jinxing it, it’s extremely rare that all your investments will perform badly at the same time, especially if your portfolio is diverse. It’s important to note that when we say “diversify”, we don’t mean buying shares in both Netflix and Warner Bros, we mean supplementing your traditional company shares with commodity investment. Peace of mind is invaluable in the trading world, and knowing your commodity of choice is immune to certain market fluctuations will make for easier sleeping at night.

Which commodities are the best to trade?

It’s difficult to give a clear answer as to what commodities are technically “the best”. Rather than give you a power ranking, here are the commodities we consider the most popular, and more importantly, why.

  • Gold: Safest bet against inflation and international affairs.
  • Natural Gas: Rare, expensive, and is used in energy and fuel.
  • Copper: Conductor of heat and electricity and withstands all weather. Supply and demand are both equally high.
  • Coffee: Constant demand around the world.
  • Steel: Not expensive to manufacture and widely used.
It’s a refreshing change to talk about tangible products for a change. Commodities are a lot more straightforward to understand in layman’s terms considering we interact with the majority of them on a daily basis. Whether trading individually or through a commodities broker, we highly recommend you conduct the proper research to go down that trading avenue, it’ll pay off.

As always, safe and happy trading! 

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