Is Investing in Commodities a Good Idea?

According to experts, a diverse portfolio is incredibly advantageous to investors as it safeguards them from potential losses. There is no better way to accomplish this than by investing in the commodity market. Commodities refer to basic goods, raw materials, and even expensive metals. For example, gold, crude oil, sugar, rice, coffee, etc., all fall under commodities.

Of course, as an individual, you may wonder why you should invest in commodities. The best reason is that it can be extremely lucrative. It will also help in preserving your purchasing power during times of inflation. This is because the prices of most commodities appreciate during such times. It’s important to know that things operate in their domain and are not affected by price fluctuations in the stock and real estate markets.

Market specialists recommend that you dedicate about 5-10% of your overall investment portfolio to commodities. This will help you offset any losses suffered in stocks. Remember to be careful with India’s commodity trading during deflation, as the prices can depreciate exponentially. Always take into account the current market situation and invest accordingly.

Investing in the commodity market will shield you against financial losses incurred during natural calamities. Such events negatively affect stocks and bonds while positively impacting many commodities’ pricing. This is also true for events like wars and economic crises. For example, there is a stark rise in oil prices during wars. Another added benefit is the high liquidity option, making buying and selling commodity shares easier.

Normally, commodity brokers solicit a certain minimum deposit amount from the investor before agreeing to the deal. This sum is mostly low concerning commodity market investments. It means the input from your side will be quite common, while the output gained will be maximum.

How to Invest in Commodities?

Everything has pros and cons, and investing in the commodity market is no different. It is generally considered a bit risky as the trading occurs in the future. Trading occurs between traders or investors who set a specific date in the future and a predetermined price to sell or buy commodities. Adopting a calculative approach while exchanging things through stocks and Exchange Traded Funds (ETFs) is highly recommended.

You’ll initially be required to open a brokerage account. This will allow you to trade via the exchange. Don’t hesitate to ask for expert advice and conduct extensive research from your side. After doing this, you have the option of investing in a variety of commodities. Remember never to put all your eggs in one basket. You can invest in physical commodities, commodity futures, commodity-related stocks, and ETFs. Many index funds hold a wide array of commodity-related stores.

Expert traders generally resort to two different analysis types to gauge the price movements of commodities: Fundamental Analysis and Technical Analysis.

Fundamental Analysis: This process combines various factors that affect commodity prices. They include tragedies, worldwide events, and many other types of occurrences. These elements have a long-term impact on the commodity market. Hence, this strategy is best suited for medium and long-term investors.

Technical Analysis: This technique includes the analysis of patterns with charts. It is perfect for people looking for short-term investments.

It’s better to combine these techniques to obtain the best results. Given the many advantages associated with commodity investments, you should consider including this in your portfolio. There are various options regarding commodity trading in India. So do your due diligence and choose the options that best suit your needs.