Commodities have always been on the radar. They have seen something of a love-hate relationship with investors. The commodities market had taken something of a hit over the course of the summer. This was due to the strengthening of the dollar. But, commodities are a sound investment for any portfolio as they are now strengthening once more in a buyer’s market.
The collapse of commodities prices and share in the summer had been something of a worrying issue for many investors. For those that are keen to expand their portfolio in a wide variety of ways, commodities had been something of a safe bet. The collapse of the prices, however, had left investors perplexed at whether their investment was safe at all.
Of course, as with any investment the market is susceptible to crashes and booms. Now, it seems that the time is right to start considering commodities as an investment once more.
Commodities have always been an intricate form of investment. For the savvy investor, they know that commodities have a long-term investment appeal.
The Impact of Falling Commodity Prices
But, the Thomson Reuters Jefferies CRB index has stated that the prices of prices have fallen. From Jun 2014, the price of various commodities has dropped by over 22%. The price of gold has slid around 7% during this time. Over the course of the last eighteen months, this has seen a dramatic reduction in value.
Why the Decline?
The decline of commodities prices is mainly due to a strong dollar. With a recovering economy, the price of commodities is now increased. With a strong dollar, come higher commodities pricing. With this, investors of commodities are now somewhat put off from investing due to the high pricing.
But, a strong dollar is not the only reason for the decline in commodities pricing.
The European market is said to be suffering from a period of stagnation. It seems that potential overseas investors cannot benefit from investing their current portfolio. What is more, the Chinese economy is now slowing down. With this, there is less of a need for materials and so, commodities prices are further pushed down.
However, it’s not all doom and gloom.
For the serious investor, there are some long-term incentives for investing in commodities. After all, markets are susceptible to crashes. The commodities market will recover.
The Long Term Rationale for Buying Commodities
Despite a slow summer, investors state that you should never ignore the value of commodities. Varying a portfolio is essential for those that want to reduce risk. For the serious investor, a small investment in the commodities market can ensure that risk is minimized. This can be done while taking advantage of the price hikes in gold for the future. The complexity of the investment market means that investors will increases and reductions in their portfolio. Whether an investor is looking at commodities, indices, stocks or shares, there will be times that the market is susceptible to crashes. Yes Option has stated that the complex nature of commodities means that investors are not au fait with how the market works. While stocks and shares move in one way, the commodities index works in a different way. Natural booms in stocks and shares will not automatically result in commodities prices increasing.
The future of commodities is relatively safe. The US economy is the most significant in the world and is seeing slow and steady recovery following the financial crash. While commodities prices may be low now, this doesn’t mean that they are not a savvy investment. On the contrary, now is the time to invest while prices are low. Once recovery has been determined, the price of commodities will fluctuate once more.
It is recommended that at least 10% of an investor’s portfolio should be made up of commodities. What is more, buying in increments is a safe bet when diversifying a portfolio. With prices at a level, it may be a great time to invest while commodities are less expensive.
The Future of Commodities
When it comes to investing, there is no clear route to take. Market prices, whether that is in bonds or commodities, can be susceptible to crashes. The key is to choose the right time to invest. With commodities prices at a low, now is the time for the serious investor to diversify a percentage of their portfolio. Gold prices are rising modestly in the last quarter of 2014. Now may be the time to consider commodities for stability.