Commodities, in simple language, as Raw material for the manufacturing process, can also be an alternative investment. Oil, wheat, Silver, Gold, Guar gum, Iron Ore, Coal, Natural gas even eggs. They allow an investor to invest in the materials that a country (or corporation) produces and those it consumes.
As there is a derivative market for equity, there is a commodity market also. If you are a speculator or not a commodity user, then maybe you need to take a position in a Commodity derivative. This market helps in various formats. It helps to understand what is the trend. It also helps to offload the risk of fluctuation in price.
Commodity cash prices may benefit from periods of unexpected inflation, whereas stocks and bonds may suffer. This is because commodities are “real assets,” unlike stocks and bonds, which are “financial assets.” Commodities, therefore, tend to react to changing economic fundamentals in ways that are different from traditional financial assets, particularly concerning inflation. In addition, commodity prices usually rise when inflation is accelerating, so investing in commodities can give portfolios a hedge against inflation. But for this, investing in the Spot market is much better as, many times, Commodity stocks are also interested in taking positions in a derivative.
There is no income from commodities like interest or dividends. Holding Commodities also incurs the cost, and for taking an exposure, most of the time, you need to understand the market. Demand and supply of commodities also make significant price changes; even if there is a massive demand for oil due to the winter season for some time or due to an industrialization push due to some govt, oil producers cant increase their production after certain limits. In agricultural commodities, this looks more difficult.
Most investors in commodities are Institutional investors or Someone from the supply chain like producers or processors.
