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Commodities

Are we waiting for the collapse of the commodity bubble?

Commodities are an interesting investment for investors. The price of gold and silver exceeds its historical highs, as do other commodities.

Before investing in commodities or commodity mutual funds, you should ask yourself if the market is before the commodity bubble bursts.

Commodities have been among the best blockbusters in the past year. The prices of gold and silver are rising, as are the prices of agricultural crops and energy ones such as oil or natural gas. The sight of growing charts is literally a feast for the eyes. Even for more experienced investors, it can sometimes be difficult to look at this trend with critical eyes.

The world economy is on the eve of another economic recession. The earlier forecast that a double bottom awaits us, or that the recession will be W-shaped, is expected to be fulfilled. It is the slowdown in China that can mean a drop in commodity markets of up to 75 percent. This is a very negative forecast. However, even other fast-growing countries from the famous BRIC group, ie Brazil, Russia and India, will not stop the decline in commodity prices. These countries will also experience a slump.

Investors are withdrawing from commodities

A survey by Barclays Capital revealed that there was an outflow of money from commodity funds in the first quarter of this year. Institutional investors, such as banks, investment companies and pension funds, have withdrawn $ 1 billion from commodity funds.

If you still want to invest in commodity funds, you should know that in the next few years, commodity prices will fall in all sectors – precious metals, agriculture, energy. The recommended investment horizon is five years. If commodity funds do not succeed, do not leave your investment. The curve will turn again over time and after a few years you will get at least the input value of the investment, or you will get at least some return.

Development of individual commodity sectors

Under the word commodity, investors are most often reminded of agricultural crops. They are constantly experiencing price fluctuations. Just two crops in a row and food prices are going up so that they fall in times of prosperity. The actual category is energy crops such as oilseed rape. As soon as subsidies for its cultivation are reduced, this can have a negative effect on its price.

Similarly, energy commodities, including oil and natural gas, are at stake. Oil as a strategic raw material is sensitive to the current economic situation. In the event of a slump, the price of oil rises, which does not benefit the global economy much.

Precious metals such as gold, silver or platinum pose a potential risk to the investor. After years of overcoming historical highs, there may be a relatively rapid fall in prices. Nevertheless, gold is considered protection against inflation.