Why Invest in the Commodity Market?

Helps To Beat Inflation:

Inflation means things get expensive.

The primary concern during investing is beating inflation. 

Products like pulses, oil, gold, silver, spices, and cotton get expensive. Investing in commodities through futures trading helps in beating inflation. 

Diversification Of Portfolio:

All financial planners suggest that we diversify our portfolio and commodities. 

They have a high return capacity, just like equities, and we have an option other than equity that can help us earn significant returns.

To diversify our investment portfolio, we may invest in E-Gold. i.e.Spot   

Market (NSEL) or Futures Market.  

To make the best price discrepancy, we can look into the purchase   

and sale of similar commodities in different markets. (arbitrage) 

Hedging Of Risks:

The commodities behave differently in times of disaster like war, drought, 

flood, political uncertainty, etc. 

Shortages in products may arise, and demand might increase. This pushes the

price up, giving an option to hedge risk. 

Surplus Fund: 

Commodities are one of the best options available to keep the surplus amount of funds one wants to invest.

High financial leverage is a great advantage of trading in commodities. 

The margin required for trading commodities is less except in spot trading, where total cash is needed. 

It ranges between 5 and 15%, whereas for equity trading, it is between 10 and 25%.

Global Institutional investor interest in commodity trading has increased rapidly in recent years.

This reflects recurrent solid and structural forces working in favour of commodity markets and the need to diversify personal investments into appropriate financial products.

But What Are These Commodities?

The inputs used in producing other goods and services are known as commodities. 

The supply and demand in the global market determine the commodity's price. 

The aspects such as weather, geo-political events, and supply-side shocks (e.g., wars, hurricanes) influence the supply and demand conditions. 

Energy products like oil and natural gas, metals like gold, copper, nickel, and agricultural products like sugar, coffee, and soybean are frequently traded commodities. 

Commodities offer a better way to diversify a portfolio of stocks and bonds. They offer better returns as well. 

Yale Study Reveals The Following Information:

Commodities futures have produced better annual returns than stock returns and exceeded bond returns further since 1959.

Commodities futures outperformed stocks during the 1970s. 

During the 1980s, the exact opposite was true - evidence of the "negative correlation" between stocks and commodities. 

The returns on commodities futures "positively correlate" with inflation.