Are Commodities Good Investments?

Good Investments

People often misunderstand the nature of risk in the good investments markets, particularly when it comes to volatile assets like commodities and cryptocurrency.

For example, both entities are classed as high-risk, high-reward investment vehicles that see their values fluctuate over time, while also demonstrating the potential to appreciate over months and years.

Certainly, commodities have enjoyed a volatile but ultimately high-growth trajectory through 2021, but does such an asset class warrant your attention (and money) in the current climate? Let’s find out about Good Investments.

Why are Commodities So Popular Among Investors and is Good Investments?

Some investors and economists have talked about the prospect of a ‘bubble’ forming in the commodity market towards the end of the year, but famous operators such as Jim Rodgers have dismissed this notion.

In fact, Rogers estimates that the currency commodities market bull run could continue indefinitely, while not losing any real momentum until 2022.

This is definitely underpinning the real-time popularity of the marketplace, while if we drill down deeper we can also see the positive impact of the sector’s diversity and versatility.

While safe haven assets and universally popular commodities such as gold and silver serve as secure stores of wealth and remain universally viable, for example, agricultural assets like maize, cotton and sugar are now widely undervalued as a result of fluctuating demand and the wider economic climate.

In fact, these assets are currently 80-90% below their all-time highs following adjustment for inflation, creating a limited window of opportunity in which investors can profit.

The Downsides to Commodity Investment and Outlook for 2022

Of course, there are numerous pitfalls to trading commodities too, which is why the asset class has such a delicate balance between risk and reward.

For example, commodity trading is relatively complex, with each individual market relatively unique, niche and easily manipulated by seasoned investors. Similarly, this risk isn’t offset by the payment of interest or dividends, which can provide peace of mind for investors who demand more frequent returns. 

Although commodities are also renowned as enabling traders to successfully hedge against other investments, it should be noted that they’re not derivatives.

Because of this, they’re traded as corporeal goods, which in turn creates associated transport and storage costs that can eat into your profits over time.

The question that remains, of course, is will the market continue to thrive in 2022? It’s certainly set to be an interesting 12 months, particularly with cryptocurrency now considered to be a commodity and one that could well face significant regulatory measures from the CFTC.

Sustainability will also become a key concept for commodities traders through 2022, especially as the world’s leading oil and energy companies continue to transition to renewable energy and invest in cleaner sources such as wind and solar.

This will be an excellent and fast-growing space to exploit over time, and it will definitely help commodity investors to diversify their portfolio in the near-term.